The Role for Deposit Insurance Funds in Dealing with Failing Banks in the European Union

Atilla Arda and Marc Dobler

No 2022/002, IMF Working Papers from International Monetary Fund

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.

Keywords: Deposit Insurance; Bank Resolution; Banking Union; Crisis Preparedness; Crisis Management; Euro Area; European Union; Financial Crisis; Financial Stability; deposit insurance; aid rule; single market; liquidation regime; host authorities' concern; EU response; fiscal authorities; authorities in host jurisdiction; Deposit insurance; Bank resolution; Bank resolution framework; Distressed institutions; Financial safety nets; Global (search for similar items in EconPapers)
Pages: 27
Date: 2022-01-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-ias and nep-rmg
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