THE EVOLVING ROLE OF DEPOSIT GUARANTEE SCHEMES WITHIN THE REFORM OF THE EU BANK CRISIS MANAGEMENT AND DEPOSIT INSURANCE FRAMEWORK

Abstract

On 18 April 2023, the European Commission adopted a proposal to adjust and further strengthen the existing EU bank crisis management and deposit insurance (CMDI) framework. The objective of the proposal is to enable authorities to organise an orderly market exit for failing banks of any size and business model, including smaller players. In particular, it aims to facilitate the use of industry-funded safety nets (e.g. Deposit Guarantee Schemes and resolution funds) to enable authorities to shield depositors in bank crises, such as through the transfer from an ailing bank to a healthy one. Moreover, to ensure that a full range of crisis management tools, such as transfer tools, can also be applied to failing smaller and medium-sized banks, the proposal brings a clarification of the public interest assessment in managing bank crises. Overall, this will preserve financial stability, protect taxpayers and depositors, and increase the efficiency of the crisis management framework for the economy. This dissertation will illustrate how the role of Deposit Guarantee Schemes in managing bank crises will evolve after the implementation of the Commission’s legislative proposal and will highlight the importance of relying on industry-funded safety nets to safeguard financial stability and protect depositors and taxpayers.