A European Deposit Insurance Scheme: key features and the way forward

AuthorDobkowitz, Sonja; Evrard, Johanne; Carmassi, Jacopo; Silva, André; Parisi, Laura; Wedow, Michael
Pages10-15
ECB Occasional Paper Series No 208 / April 2018
10
3 A European Deposit Insurance Scheme:
key features andthe way forward
In November 2015 the European Commission presented a proposal to establish an
EDIS as the third pillar of the banking union.9EDIS would be set up in three stages:
first, for three initial years from July 2017 to July 202010, a reinsurance scheme
would cover up to 20% of the liquidity shortfall11and up to 20% of the excess loss12
of a participating DGS whenever payouts and losses exceed the DGS’s available
financial means. The liquidity would be provided by means of a loan which the DGS
has to pay back, while the reinsured part of the excess loss, i.e. 20%, would not
have to be paid back. Furthermore, in order to limit moral hazard, the reinsurance
funding would be capped at 20% of the DIF’s initial target level orten times the
target level of the insured DGS, whichever is lower. In addition, the benchmark for
calculating whether and to what extent a DGS can access the EDIS during the re-
insurance phase is the hypothetical level of liquidity the DGS should have if it had
complied with all its obligations (e.g. collecting ex ante contributions to reach the
target level), and not the actual level of liquidity in a DGS. Finally, other sources
available to the DGS (e.g. raising short-term ex post contributions) have to be tapped
before resorting toEDIS and the SRB is mandated to monitor the way the DGSs
pursue their claims during insolvency proceedings.During the reinsurance stage,
banks' risk-based contributions to the DIF would be calculated with reference to the
national banking system, i.e. relative to the riskiness of banks in the same country
and not of all banks in the banking union.
In the second stage, for four years afterthe end of thereinsurancestage anduntil
July 2024, a co-insurance scheme would be set up where the DIF would cover a
gradually increasing share (20% in year 1, 40% in year 2, 60% in year 3, 80% in year
4) of the liquidity needs and losses of participating DGSs. Co-insurance would kick-in
“as of the first euro”, so independently of the national DGSs’ resources being
exhausted. As it is the DGS which has the claim against the DIF (as opposed to
depositors or banks), any payout would be channelled through the national DGS.
While the liquidity provided to the DGS would have to be repaid, this is not the case
for the coveredloss, which would be shared pro rata between the national DGSs and
DIF in line with the gradually increasing coverage ratio. No cap would be provided for
the amount due by the DIF. During the co-insurance stage, and differently from the
9Proposal for a Regulation of the European Parliament and Council amending Regulation (EU)
806/2014 in order to establish a European Deposit Insurance Scheme.
10To note, due to delays in the on-going negotiations, the timeline foreseen by the Commission is not
expected to be met.
11According to the C ommission proposal, the liqui dity shortfall is the amount of c overed deposits in the
failing bank which exceeds the total available financial means in the DGS (i.e. under the DGSD,
available funding plus extraordinary contributions that the DGS can raise within 3 days of the payout
event).
12The excess loss is t he loss remaining once the insolv ency procedure is over (after r ecovery) and
long-term ex-post contributions have been called.

Get this document and AI-powered insights with a free trial of vLex and Vincent AI

Get Started for Free

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT