The Macroeconomic Effects of a European Deposit (Re-) Insurance Scheme
Stefan Gebauer and
No 1873, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research
While the ﬁrst two pillars of the European Banking Union have been implemented, a European deposit insurance scheme (EDIS) is still not in place. To facilitate its introduction, recent proposals argue in favor of a reinsurance scheme. In this paper, we use a regime-switching open-economy DSGE model with bank default and bank-government linkages to assess the relative efficiency of such a scheme. We find that reinsurance by both a national fiscal backstop and EDIS is efficient in stabilizing the macro economy, even though welfare gains are slightly larger with EDIS and debt-to-GDP ratios rise under the fiscal reinsurance. We demonstrate that risk-weighted contributions to EDIS are welfare-beneficial for depositors and discuss trade-oﬀs policy makers face during the implementation of EDIS. In a counterfactual exercise, we find that EDIS would have stabilized economic activity in Germany and the rest of the euro area just as well as a fiscal backing of insured deposits during the financial crisis. However, the debt-to-GDP ratio would have been lower with EDIS.
Keywords: Banking Union; Deposit Insurance; Risk-Sharing (search for similar items in EconPapers)
JEL-codes: E61 F42 F45 G22 G28 (search for similar items in EconPapers)
Pages: 67 p.
New Economics Papers: this item is included in nep-dge, nep-eec, nep-ias, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1873
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