New Policy Paper on Cross-Border Effects of National Deposit Insurance Systems

Deposit insurance systems are a common feature of the financial systems of most countries. Their rationale is twofold: to protect bank depositors in case of a bankruptcy and, even more importantly, to avoid widespread bankruptcies as a consequence of bank runs in the first place. However, in times of globally mobile capital, customers might look for safe(r) havens for their deposits abroad, especially when countries are experiencing a financial crisis. This can lead to a global competition for providing the best safety and, hence, destabilize the financial system of a crisis country even further. In a new policy paper, published in Ifo’s DICE Report, written jointly with Stefanie Kleimeier, Shusen Qi and myself review our recent research (forthcoming in Economic Inquiry) and argue that there is a strong case for global and regional coordination. Our research therefore also lends support for establishing a common European Deposit Insurance System (EDIS) to make the Euro area more resilient to future crises.

This entry was posted in deposit insurance, financial stability, global banking, Uncategorized and tagged , , . Bookmark the permalink.