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© 2022 International Monetary Fund
WP/22/2
IMF Working Paper
Monetary and Capital Markets Department
The Role for Deposit Insurance Funds in Dealing with Failing Banks in the European Union
Prepared by Atilla Arda and Marc Dobler*
Authorized for distribution by Miguel Savastano
January 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: This paper argues that in the European Union (EU) deposit insurance funds are too difficult to use in bank resolution and too easy to use outside resolution. The paper proposes reforms in three areas for the effective management of bank failures of small and medium-sized banks in the European Union: making resolution the norm for dealing with failing banks; establishing a common DIS for the European Union; and increasing funding and backstops for deposit insurance while removing constraints on their use for resolution measures. Without these changes, the European Union will continue to be challenged by banks that are too small for resolution and too large for liquidation.
RECOMMENDED CITATION: Arda, A, and Dobler, M.C. (2022), The Role for Deposit Insurance Funds in Dealing with Failing Banks in the European Union, IMF Working Paper WP/22/2, Washington DC: International Monetary Fund
| JEL Classification Numbers: | G21, G28 |
| Keywords: | Deposit Insurance, Bank Resolution, Banking Union, Crisis Preparedness, Crisis Management, Euro Area, European Union, Financial Crisis, Financial Stability |
| Authors’ E-Mail Addresses: | AArda@imf.org; MDobler@imf.org |
| JEL Classification Numbers: | G21, G28 |
| Keywords: | Deposit Insurance, Bank Resolution, Banking Union, Crisis Preparedness, Crisis Management, Euro Area, European Union, Financial Crisis, Financial Stability |
| Authors’ E-Mail Addresses: | AArda@imf.org; MDobler@imf.org |
Title Page
WORKING PAPERS
The Role for Deposit Insurance Funds in Dealing with Failing Banks in the European Union
Prepared by Atilla Arda and Marc Dobler
Contents
GLOSSARY
INTRODUCTION
I. INTERNATIONAL EXPECTATIONS FOR DEPOSIT INSURANCE SYSTEMS
II. THE CURRENT STATE OF DEPOSIT INSURANCE IN THE EUROPEAN UNION
III. TOWARD A STRONGER ROLE FOR DEPOSIT INSURANCE
IV. REFERENCES
BOX
1. EU Rules on State Aid to Financial Institutions
ANNEXES
I. Selected Recommendations on Deposit Insurance and Crisis Management from FSAPs in EU Countries (2016–2021)
II. Selected Recommendations on Deposit Insurance and Crisis Management from the Euro Area FSAP (2018)
Glossary
| BRRD | Bank Recovery and Resolution Directive |
| CP | Core Principles for Effective Deposit Insurance Systems |
| DGSD | Deposit Guarantee Schemes Directive |
| DIA | Deposit Insurance Agency |
| DIF | Deposit Insurance Fund |
| DIS | Deposit Insurance System |
| EA | Euro Area |
| EBA | European Banking Authority |
| EC | European Commission |
| ECB | European Central Bank |
| EDIS | European Deposit Insurance Scheme |
| ESM | European Stability Mechanism |
| EU | European Union |
| FITD | Fondo Interbancario di Tutela dei Depositi |
| FSAP | Financial Sector Assessment Program |
| FSB | Financial Stability Board |
| GFC | 2008–09 Global Financial Crisis |
| KA | Key Attributes of Effective Resolution Regimes for Financial Institutions |
| IADI | International Association of Deposit Insurers |
| MREL | Minimum Requirement for Own Funds and Eligible Liabilities |
| NRA | National Resolution Authority |
| OECD | Organisation for Economic Co-operation and Development |
| P&A | Purchase and Assumption |
| SRB | Single Resolution Board |
| SRF | Single Resolution Fund |