Deposit Over-Insurance in EU Accession Countries - A Moral Hazard Boomerang to the Euro Area?

35 Pages Posted: 20 Jul 2008 Last revised: 25 Jul 2008

See all articles by Kalina Dimitrova

Kalina Dimitrova

Bulgarian National Bank

Nikolay Nenovsky

Bulgarian National Bank

Date Written: July 2008

Abstract

The paper presents the coverage levels and institutional features of deposit insurance in EU accession countries. A simple comparison in relative and nominal terms states that deposit insurance in 10 Central and Eastern European countries is considerably not only above the level of 'the good practice' but also above the euro area average. The characteristics of deposit insurance systems are studied as a part of the safety nets in these countries, which configuration is, on one hand, directly inherited from the legacy of the central-planned economy, modified in the transition process accompanied by deep structural changes and severe banking crises, and on the other hand, imposed by the EU accession requirements and harmonization process. In spite of the fact that there might be some historical and logical justification of the deposit over-insurance in accession countries, it could inevitably lead to increasing moral hazard, incentives distortion and increasing costs of banking intermediation in the whole enlarged euro area. Unfortunately, we have to point out that deposit insurance in accession countries is an example of the contradictions during the financial harmonization of the EU countries.

Keywords: deposits insurance, financial regulation, accession countries

JEL Classification: G1, P2

Suggested Citation

Dimitrova, Kalina and Nenovsky, Nikolay, Deposit Over-Insurance in EU Accession Countries - A Moral Hazard Boomerang to the Euro Area? (July 2008). Paolo Baffi Centre Research Paper No. 2008-20, Available at SSRN: https://ssrn.com/abstract=1160136 or http://dx.doi.org/10.2139/ssrn.1160136

Kalina Dimitrova (Contact Author)

Bulgarian National Bank ( email )

str "St. Sofia" 5
Sofia, 1040
Bulgaria

Nikolay Nenovsky

Bulgarian National Bank ( email )

str "St. Sofia" 5
Sofia, 1040
Bulgaria
+ 359 2 9145 1239 (Phone)
+ 359 2 980 24 25 (Fax)

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