11 Sep 2012

A European Deposit Insurance and Resolution Fund

An Update

Dirk Schoenmaker / Daniel Gros

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Cross-border firms supply goods and services throughout Europe and cross-border banks facilitate the cross-border traffic by persons and firms. European banks are thus an integral part of the internal market. Yet cross-border banking is not stable in the current institutional setting as national authorities focus on preserving the national parts of a cross-border bank and the integrated value of a bank is neglected. European banks therefore need a European safety net, which is a precondition for putting the supervisory framework on a European footing. This Policy Brief first shows the overall architecture for a banking union in the euro area and sketches the basic building blocks of such a safety net. Next, it provides a sketch of a prospective European Deposit Insurance and Resolution Fund and outlines how one could structure a gradual transition from the national deposit insurance funds to the new European fund. Finally, it calculates that a European Deposit Insurance Fund would amount to about €30-50 billion for the 75 euro area banks that were subject to the EBA stress tests. This Fund could be created over a period of time through risk-based deposit insurance premiums levied on these banks. Once up and running, the Fund would then turn into a European Deposit Insurance and Resolution Fund to also deal with the resolution of one or more of these European banks.

Dirk Schoenmaker is Professor at the Duisenberg School of Finance in Amsterdam. Daniel Gros is Director of CEPS. This paper is an update of a CEPS Working Document published by the authors earlier this year.