New Rules for Calculating Contributions to Deposit Guarantee Schemes in Europe: An Application to the Spanish Banking System
Spanish Journal of Finance and Accounting, 45:4, 389-414.
42 Pages Posted: 11 Feb 2016 Last revised: 2 May 2018
Date Written: June 16, 2016
This paper analyzes the effects on the Spanish banking system of the new rules for calculating bank contributions to deposit guarantee schemes (DGSs) established by the European Directive dated 16 April 2014. Our sample represents over 90% of the covered deposits in Spain during the period from 2008 to 2014. We follow the guidelines published by the European Banking Authority in 2015, which propose two different methods for calculating risk weights: the bucket method and the sliding scale method. We find that most banks would increase their contributions to DGSs under the new system based on risk-adjusted contributions, indicating a cross-subsidy in the flat-rate system from lower-risk credit institutions to higher-risk institutions. Moreover, we report that the bucket method would provide stronger incentives for banks to engage in prudent risk management. Finally, we conclude that the new system could reduce the moral hazard often associated with larger banks.
Keywords: deposit guarantee scheme; deposit insurance system, moral hazard, European banking system, banking union, banking regulation
JEL Classification: G21, G22, G28
Suggested Citation: Suggested Citation