Non-technical summary

AuthorDobkowitz, Sonja; Evrard, Johanne; Carmassi, Jacopo; Silva, André; Parisi, Laura; Wedow, Michael
ECB Occasional Paper Series No 208 / April 2018
Non-technical summary
This paper provides five analytical contributions to the discussion on the
establishment of a European Deposit Insurance Scheme (EDIS). First, the exposure
of a fully mutualised EDIS to bank failures1 is estimated, examining how the
European Deposit Insurance Fund (DIF), with a target size of 0.8% of covered
deposits of participating banking systems, would be affected under different stress
and bail-in scenarios as well as under different methodological assumptions.
Second, the paper provides a quantitative analysis of how the calibration of deposit
insurance risk-based contributions (based on current banks’ risk profiles) affects the
distribution of contributions across countries and banks. Third, the paper investigates
how the collection of contributions would be spread across small, medium and large
banks. Fourth, the analysis aims to verify whether EDIS would produce any
systematic cross-subsidisation between banking sectors in different Member States,
also taking into account potential country-specific shocks. Finally, a mixed deposit
insurance scheme, with national funds bearing the first burden and a European fund
intervening only afterwards, is tested to investigate its potential implications for
contributions and cross-subsidisation.
This paper first focuses on a fully-fledged EDIS with a target level of 0.8% of covered
deposits of the participating banking systems. The analysis is based on Bankscope
data as well as supervisory data for 2015:Q4 on covered deposits and balance sheet
indicators to estimate EDIS exposure to bank failures and contributions to EDIS at
bank level. The conclusions of the analysis are therefore based on the assumption
that banks’ balance sheet structures remain the same until EDIS has been fully
introduced. The sample scrutinised comprises 1,675 euro area banks with total
assets of €22.14 trillion, representing approximately 75% of total assets of credit
institutions in the euro area, and €4,744 billion of covered deposits, corresponding to
approximately 83% of covered deposits in the euro area. The sample can be
considered as representative at the euro area level, both in terms of total assets and
covered deposits.2 The target size of the DIF for the sample is approximately
€38 billion.
The exposure of EDIS is measured for banking crises of a different magnitude,
where the riskiest 3% or 10% of banks fail simultaneously according to their
estimated probabilities of default, in combination with different magnitudes of loss
severity3, ranging from 5% to 25% of total assets in resolution and between 7.5%
and 37.5% in insolvency, and two variations of banks’ loss-absorbing capacity. The
results indicate that a fully-funded DIF would be sufficient to cover payouts even in
very severe crises - even more severe than the 2007-2009 global financial crisis. It
should be stressed that the loss scenarios used for the analysis are extremely
1 The term “EDIS exposure” refers to the potential need for an EDIS intervention in case of a bank
2 The degree of representativeness of the sample at country level is, however, heterogeneous.
3 Losses in i nsolvency are assumed to be always 50% higher than losses in resolu tion.

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