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

Abstract

Recent proposals for a still missing European deposit insurance scheme (EDIS) argue in favor of a reinsurance framework. In this paper, we use a regime-switching open-economy DSGE model with bank default to assess the relative efficiency of such a scheme. We find that reinsurance by EDIS is more effective in stabilizing real activity, credit, and welfare than a national fiscal backstop. We demonstrate that risk-weighted contributions to EDIS are welfare-beneficial for depositors and discuss trade-offs policymakers face during the implementation of EDIS. We also find that macroprudential regulation and EDIS can complement each other and that EDIS can prevent bank runs under certain conditions.

Tobias König

Post-Doctoral Researcher in Economics

I am a postdoctoral researcher at the Institute of Finance and Statistics at the economics department of the University of Bonn and the Collaborative Research Center (CRC) TR 224.