The Role of Deposit Guarantee Schemes in Preventing and Managing Banking Crises: Governance and Least Cost Principle

European Company and Financial Law Review 2020/06

32 Pages Posted: 3 Nov 2020

See all articles by Irene Mecatti

Irene Mecatti

Siena University - Law Department; Law Department- Siena University

Date Written: October 14, 2020

Abstract

The Deposit Guarantee Directive enlarges the role of DGSs in supporting and financing with alternative interventions, the early research of “market solutions” that may avoid the failure of a bank. Despite the broad mandate formally set out in the Directive, the feasibility of the failure prevention measures by a DGS could be somehow restricted according to the current legal framework. More specifically, constraints to the use of alternative interventions could derive both from State aid rules and the introduction of depositor preference coupled with the least cost criterion. Given the importance of the role of DGSs in preventing and minimizing the overall cost of a banking crisis, this paper aims at analysing the two issues above, in order firstly to suggest a governance model which allows a national DGS to intervene in a banking crisis without breaking State aid rules. Secondly, with refer to the least cost principle, the paper suggests the adoption of some criteria, extrapolated by the DGSD, which may allow DGSs to overcome to problems arising from the combination of the above principle with the super priority rule.

Keywords: State aid, banking crisis managment, resolution, deposit guarantee schemes, alternative interventions, super priority rule, least cost criterion, bail in, crisis managment

JEL Classification: G01, G08, G21, K22, K23

Suggested Citation

Mecatti, Irene and Mecatti, Irene, The Role of Deposit Guarantee Schemes in Preventing and Managing Banking Crises: Governance and Least Cost Principle (October 14, 2020). European Company and Financial Law Review 2020/06, Available at SSRN: https://ssrn.com/abstract=3692587

Irene Mecatti (Contact Author)

Law Department- Siena University ( email )

Via Mattioli 10
siena, 53100
Italy
53100 (Fax)

HOME PAGE: http://https://docenti.unisi.it/en/mecatti

Siena University - Law Department ( email )

Via Mattioli n. 10
siena, siena 53100
Italy

HOME PAGE: http://https://docenti.unisi.it/en/mecatti

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