Prepared by Luc Laeven (RES). Research assistance from Lindsay Mollineaux is greatly acknowledged.
The table only reflects statutory schemes, not voluntary or contractual schemes.
The German private scheme for commercial banks, with coverage of 30 percent of bank capital per depositor, offers essentially unlimited coverage for most depositors.
In 2011, the Netherlands adopted a regulation to transform its ex-post DGS into an ex-ante funded scheme with risk-based contributions. The new regulatory framework will come into effect on July 1, 2013.
This is to be gradually reduced to 8.75 percent over a span of 10 years, starting in 2015.
Again, these tables are indicative of the range of approaches taken and cannot capture all aspects.
Such mutual borrowing arrangements would mean that if the financial capacity of one DGS became depleted, it could borrow money from other schemes.
Details on the Commission’s impact assessments can be found in: http://ec.europa.eu/internal_market/bank/docs/guarantee/20100712_ia_en.pdf.
One possibility would be for the EU to provide upfront funding to national DGS, for example through the ESM, and then levy the charges on banks to be paid back over a period of time. This would serve to increase the credibility of a funded scheme without the additional burden on an already weakened banking system. This is akin to the U.S. FDIC’s credit lines from the Treasury that can be drawn upon in case funds are depleted and that eventually would be repaid by industry.
For details on the December 14, 2012 agreement by the European Council on the establishment of the SSM, see http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/134265.pdf and http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/134353.pdf.
For more detailed treatments on best practices and principles of deposit insurance, see Basel Committee on Banking Supervision (BCBS) and International Association of Deposit Insurers (IADI) (2009), “Core Principles for Effective Deposit Insurance Systems,” available at: https://www.bis.org/publ/bcbs156.pdf, Asli Demirguc-Kunt, Edward Kane, and Luc Laeven (Eds.), (2008), Deposit Insurance around the World: Issues of Design and Implementation, Cambridge, MA: MIT Press; Alan S. Blinder and Robert F. Wescott (2001), “Reform of Deposit Insurance: A Report to the FDIC,” mimeo, FDIC and Princeton University. http://www.fdic.gov/deposit/insurance/initiative/reform.html; and Gillian G.H. Garcia (2000), “Deposit Insurance: Actual and Good Practices,” IMF Occasional Paper No. 197, Washington, DC: International Monetary Fund.
For example, a DGS typically has a primary legal mandate to protect depositors, and secondly to minimize its own costs. Fulfilling those mandates may be inconsistent with minimizing overall costs, maintaining financial services and the credit supply, and promoting systemic stability.
See also Nenovsky, Nikolai and Kalina Dimitrova, 2008, “Deposit Overinsurance in EU Accession Countries,” in: A. Demirguc-Kunt, E. Kane, and L. Laeven (Eds.), Deposit Insurance Around the World: Issue of Design and Implementation, Cambridge, MA: MIT Press.
There is always healthy competition between insured and non-insured savings vehicles. What is not desirable in this context is regulatory competition. Moreover, while imposing the same coverage limit across member states levels the playing field for competition purposes, it may differentially affect market discipline at the member state level.
See, for instance, Marino, J. A. and Rosalind L. Bennett, 1999, “The Consequences of National Depositor Preference,” FDIC Banking Review, Vol. 12, pp. 19-38.
A recent French legislative draft proposes a comprehensive resolution regime with a Resolution Authority and the DGS fund in charge of both deposit insurance and resolution.
For further details on governance arrangements and mandates in some member states, including general principles, see the Financial Stability Board’s “Thematic Review on Deposit Insurance Systems “available from www.financialstabilityboard.org/publications/r_120208.pdf.
Demirguc-Kunt, Asli, and Harry Huizinga (2004), “Market discipline and deposit insurance,” Journal of Monetary Economics, vol. 51(2), 375-399.
Exceptions include Finland, France, Greece, Hungary, Italy, Portugal, Romania, and Sweden.
Risk-adjusted premiums are also consistent with the Basel Committee on Banking Supervision (BCBS) and International Association of Deposit Insurers (IADI)’s “Core Principles for Effective Deposit Insurance Systems.”
The proposed DGS Directive would permit but does not require such mergers of funds.
See Attachment A of the FDIC Options Paper of August 2000, available at: http://www.fdic.gov/deposit/insurance/initiative/OptionPaper.html. There can also be important adverse selection problems when banks are allowed to choose which fund they belong to, particularly if the choice of fund is associated with a different set of regulations or different regulators. This seems particularly important when the banks in different funds are very similar, so that there is an opportunity for regulatory arbitrage. U.S. experience during the savings and loans (S&L) crisis, where weaker S&Ls stayed in the FSLIC while stronger banks joined the FDIC, supports this view.
See Huizinga, Harry (2008), “The EU Deposit Insurance Directive: Does One Size Fit All?,” in: Asli Demirguc-Kunt, Edward Kane, and Luc Laeven (Eds.), Deposit Insurance around the World: Issues of Design and Implementation, Cambridge, MA: MIT Press; and Harry Huizinga and Gaetan Nicodeme (2003), “Deposit Insurance and International Bank Deposits,” CEPR Discussion Papers No. 3244, London, U.K.: CEPR.
Such harmonization of voluntary schemes is currently not envisioned under existing EC proposals.
As also reflected in the December 14, 2012 agreement by the European Council, the SSM and the establishment of the pan-EU bank resolution fund are currently given a clear priority, with the common funding of DGS considered as an objective to be pursued at a later stage.
Potentially including funds for deposit transfers and purchase and assumption transactions.
A large fund would result in an excessive buildup of sterile funds that are not available to support bank lending, and therefore could negatively affect credit supply and the economy at large.
Taxpayer costs associated with such backstops can be recouped over time from the financial sector. Any positive externalities for the real economy associated with the existence of deposit insurance could justify a government subsidy.