Deposit Guarantee Schemes and Bank Crisis Management: Legal Challenges Arising from the Actual EU Legal Framework

Abstract

The COVID-19 crisis might affect banks too due to, in particular, the problem of npls. In the imminent future it is therefore crucial to maintain banks resolvable. But resolution is for the few, not the many. The so called "middle class" - less significant banks and significant not subject to resolution - will be liquidated under the national insolvency procedure (not-yet-harmonized). As the liquidation, in the lack of a buyer of the bank business, might become a disorderly one, it is crucial to prevent bank insolvency of this kind of banks. In this context, DGSs might play a fundamental role. Then, the paper will analyze the role of DGS in both liquidation and resolution, focusing on the legal constraints arising from the actual legal framework (BRRD; DGSD, Banking Communication 2013) and suggests some proposals to address and overcome them. It also takes into consideration the proposal of a fully harmonized bank insolvency procedure, underlining the need to previously harmonized some key points (ground of insolvency/resolution; creditor hierarchy; public intervention in resolution/liquidation).

Keywords: COVID-19, non performing loans, bank insolvency, bank resolution, significant and less significant banks, deposit guarantee schemes, bank runs, financial stability, state aid

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