A European Deposit Insurance and Resolution Fund - An Update

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.