Skating on Thin Ice: What deposit insurance scheme for Europe?

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Thursday, 13 January, 2011 - 09:00
CEPS - Centre for European Policy Studies 1 Place du Congrès / Congresplein 1000 Brussels

Recent bank failures have dramatically illustrated the insufficient harmonisation of deposit insurance in the EU. Memories of the run on Northern Rock (2007) or the failing Icelandic banks (2008/09) are fresh in many depositors’ minds. Designing an efficient scheme to underpin the single financial market is therefore a key policy priority.

At EU level, deposit insurance is regulated by the 1994 Directive on deposit guarantee schemes (DGS), but the minimum harmonisation approach adopted at that time has proven largely insufficient. The Directive left much room for national differences regarding the coverage level as well as types of insured deposits/depositors. It did not specify any financing requirements for DGS or obligatory reserves of funds. When the financial crisis hit, the colossal failure of some DGS to honour and manage depositors’ national and cross-border claims led to major government interventions. To alleviate the pressures, the EU decided in the midst of the crisis to increase the minimum coverage to € 50,000 and later € 100,000, but left the remainder of deficiencies to be addressed in a more elaborate proposal.

The Commission’s proposal, issued last summer on July 12th, addresses some of these challenges. It fixes the coverage level at €100,000, extends insurance to all currencies, lays down financing requirements, some ex ante some ex post, enables cross-border borrowing amongst DGS in case of insufficient funding and establishes report obligations to the newly created European Banking Authority.

The proposal goes too far for some, as it entails important adaptation requirements of national systems that had different scopes of coverage or funding mechanisms in place. At the same time, it falls short of expectations for others, as it basically keeps the current structure of national DGS and does not adequately address existing challenges. The text does not touch upon governance issues, legal structures or ultimate liability (public/private) in case of bank failure.

The question thus arises how to design a scheme for the single market. Should deposit insurance be integrated into an EU financial safety net? Should there be another form of a pan-European scheme, possibly a 28th regime or a single fund?

Taking these questions as a point of departure, speakers at this ECRI/CEPS seminar will assess the Commission’s proposal and share their insights on remaining problematic issues.

Policy-makers' view:

Mario Nava is the Head of Unit “Banking and financial conglomerates” at Directorate General for the Internal Market, European Commission. The Unit is responsible for designing and implementing the regulatory framework for banking and financial conglomerates and has been in charge of drafting the Commission’s proposal of July 2010 to recast the Directive on deposit guarantee schemes. Prior to his current position, Mr Nava was the Head of the Commission’s Financial market infrastructure unit, advised President Romano Prodi (2001-04) in economic and budget policy matters and worked in the Cabinet of Competition Commissioner Mario Monti (2000-01). Mr Nava is a visiting professor at Bocconi University and occasional lecturer in many universities across Europe.

Peter Simon, Peter Simon is a Member of the European Parliament in the Group of the Progressive Alliance of Socialists and Democrats and is the main Rapporteur on the DGS proposal. Before joining the EP in 2009, he was the director for economic development for the Rhine-Neckar Metropolitan Region (2007-09) and worked as the head of the office for European affairs at the City of Mannheim (1999-2007). Mr Simon studied law at the University of Heidelberg and has lectured European law at the Cooperative State University Mannheim (2000-09).

Sven Giegold has been elected Member of the European Parliament in 2009 and is the coordinator of the "Greens/EFA" group in the Economic and Monetary Affairs Committee (ECON). Mr Giegold is the Greens’ Shadow Rapporteur on the proposal for a recast of the DGS Directive and has been the Rapporteur on European Securities and Market Authority (ESMA). Prior to his current engagement, he has been active in ecology movements and has co-founded Attac Germany, the International Tax Justice Network (London) and the Institute for Solidarity in Modern Times (Berlin).

Barnabás Dezséri, Attaché for Financial Services, Permanent Representation of Hungary; appointed expert for the Hungarian Presidency of the Council of the European Union

Experts' view:

Thorsten Beck is Professor of Economics and Chairman of the European Banking Center at Tilburg University. Before joining Tilburg University in 2008, he was a senior economist in the research department of the World Bank. He holds a PhD from the University of Virginia and an MA from the University of Tübingen in Germany. His research, academic publications and operational work have focused on two major questions: What is the relationship between finance and economic development? What policies are needed to build a sound and effective financial system?

Rosa María Lastra is Professor in International Financial and Monetary Law at the Centre for Commercial Law Studies, Queen Mary, University of London. She is a member of the Monetary Committee of the International Law Association, a senior research associate of the Financial Markets Group of the LSE and an affiliated scholar of the Centre for the Study of Central Banks at NYU School of Law. She has consulted with various (inter)governmental institutions, including the IMF, the World Bank, the Asian Development Bank and the NY Federal Reserve. In 2008/2009 she acted as Specialist Adviser to the EU Committee of the House of Lords regarding its Inquiry into EU Financial Regulation and responses to the financial crisis.

Practitioners' view:

Dirk Cupei is the Vice-Chairman of the European Forum of Deposit Insurers (EFDI) and the Director of the Deposit Protection Fund of the Association of German Banks. In this latter position, he is responsible for both the voluntary and mandatory deposit protection schemes for private banks in Germany. Mr Cupei acts as a consultant to a number of German, European and international institutions and chairs the Working Group on Deposit Insurance at the European Banking Federation (EBF). He graduated from the Universities of Bonn and Münster and is a qualified lawyer specialising in business law and banking law.

Alex Kuczynski is the Director of Corporate Affairs at the Financial Services Compensation Scheme (FSCS) in the UK. The role brings together the Scheme's work in areas that include legal support, communications and policy. With colleagues and counterparts in the UK and in Europe, Mr Kuczynski has been involved in reviewing the European Directives on compensation, and how the proposals will affect consumer protection. He worked closely on the FSCS response to the banking crisis in 2008. Mr Kuczynski is a member of the Banking Liaison Panel, under the Banking Act 2009.


Rym Ayadi is Senior Research Fellow and Head of Research of the Financial Institutions, Prudential Policy and Tax Unit at CEPS. She holds a PhD in Economics from University Paris Dauphine. Ms Ayadi’s fields of expertise include financial markets, financial regulation and supervision, crisis management and competition policy. She has been an expert member of several high-level expert groups in the European Commission (e.g. FIN-USE and ILEG), an external advisor to the European Parliament and invited expert in international organisations.

The programme is available here.

To download the presentations, please click here.