The Macroeconomic Effects of a European Deposit (Re-)Insurance Scheme
Abstract
Recent proposals for a European deposit insurance scheme (EDIS) favour a reinsurance framework. In this paper, we use a regime-switching open-economy DSGE model with bank defaults 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 policy makers 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.
News Coverage: Handelsblatt.
Forthcoming in the Journal of Money, Credit and Banking.
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.