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The Macroeconomic Effects of a European Deposit (Re-) Insurance Scheme

Marius Clemens, Stefan Gebauer and Tobias König

No 1873, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: 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.
Date: 2020
New Economics Papers: this item is included in nep-dge, nep-eec, nep-ias, nep-mac and nep-opm
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