European Deposit Insurance and the Bank Resolution System: An Opportunity to Extend the Single Resolution Mechanism

Evropský systém pojištění vkladů a řešení krizí bank: příležitost k rozšíření jednotného mechanismu pro řešení krizí

Lukáš Marek

Acta Oeconomica Pragensia, 2017, vol. 2017, issue 4, 59-76

Abstract: The aim of this paper is to analyse the potential design and competences of a European Deposit Insurance System, which would extend the operation of the existing Single Resolution Mechanism. The analysis also builds on the design of the Federal Deposit Insurance Corporation (FDIC) operating in the US, which is endowed with both resolution and deposit insurance competences. I argue that the Single Resolution Fund (SRF) could be transformed into a Single Resolution and Deposit Insurance Fund (SRDIF) whose capacity would be increased to 1.8% of insured deposits. SRDIF resources would be available both for bank resolution and deposit pay-outs. The main elements of the financing arrangements for the SRDIF would include risk-weighted ex-ante contributions from the banking sector and a public backstop created through a transformed ESM. Given the legal constraints derived from the so-called Meroni ruling, the discretionary decision making of an institution managing the SRDIF would have to involve the Commission and the Council as is the case of the existing Single Resolution Board (SRB). In order to mitigate the adverse selection issue, mutualisation of resources in the SRDIF would have to be gradual over a transition period of six years until 2024. A sufficient reduction of risks across national banking sectors in the EU/Eurozone Member States would have to be achieved in the transition period.

Keywords: European Deposit Insurance System; bank resolution; deposit insurance; Federal Deposit Insurance Corporation; moral hazard; adverse selection; free rider problem (search for similar items in EconPapers)
JEL-codes: G28 H12 K2 P52 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.18267/j.aop.589

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