Evaluation of the alternatives of the European Deposit Insurance Scheme

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Journal Title
Journal ISSN
Volume Title
School of Business | Master's thesis
Date
2017
Major/Subject
Mcode
Degree programme
Economics
Language
en
Pages
71
Series
Abstract
The Banking Union, the Economic and Monetary Union's main reform during the recent crisis, is still unfinished without its third pillar, the European Deposit Insurance Scheme. The first two pillars have already ensured that the supervision and resolution of the banks are on the European level. However, the common deposit insurance is still a necessary element to fulfill the Banking Union's objective, to plausibly break the negative feedback loop between sovereigns and their domestic banking sector. This reform, to effectively protect the depositors in the euro area, was put on hold because of the fear of many European member states that it would induce moral hazard and excessive risk-taking. Moral hazard in this setting means that both the member states and banks interests and behavior may change in an undesirable way since the cost of bank failures will be socialized. In my thesis, I analyse the most favorable, but still attainable options of the European Deposit Insurance Scheme, and the ways to mitigate its drawbacks. In the analysis, I suggest feasible alternatives, necessary measures to lessen moral hazard, and inevitable fiscal back-stops to ensure the credibility of a common scheme.
Description
Thesis advisor
Haaparanta, Pertti
Keywords
banking regulation, banking, European Deposit Insurance Scheme, EDIS, national deposit insurance, moral hazard, fiscal back-stop
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