European Deposit Insurance Scheme implementation: pros and cons

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The creation of deposit insurance systems in world practice has become a tool for solving problems of maintaining the stability of banking systems, increasing customer confidence in banks and other credit institutions, and preventing cases of mass withdrawal of deposits during economic crises. The paper aims to examine why such an important pillar of the banking union as the European Deposit Insurance Scheme (EDIS) has not yet been implemented. The deadlock in the EDIS negotiations is unprecedented, and the likelihood that the agreement towards this pillar will be reached is rather low. The main reason for its blocking is the existing differences of interests between the main actors, and as a consequence, it makes the progress towards the completion of this process impossible. This study attempts to structure these interests, and it seems that the necessary tool to help bring them together is the concept of moral hazard. The results obtained confirmed the hypothesis that the main barrier for EDIS introduction is the severe difference of interest between countries that can be potentially major contributors and those that hope to benefit from that. Moreover, one of the arguments for such a delay is that cross-border subsidization leads to the problem when the country with better economic indicators pays for the debts of weaker economies as the costs should be socialized.

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    • Figure 1. NPL ratio in Western Europe (March 2019)
    • Figure 2. German evolution of national debt
    • Conceptualization
      Polina Kuznichenko
    • Data curation
      Polina Kuznichenko, Serhiy Frolov, Volodymyr Orlov, Oleksii Boiko
    • Formal Analysis
      Polina Kuznichenko
    • Funding acquisition
      Polina Kuznichenko
    • Methodology
      Polina Kuznichenko, Serhiy Frolov
    • Validation
      Polina Kuznichenko, Volodymyr Orlov
    • Visualization
      Polina Kuznichenko
    • Writing – original draft
      Polina Kuznichenko, Serhiy Frolov
    • Writing – review & editing
      Polina Kuznichenko, Serhiy Frolov, Volodymyr Orlov, Oleksii Boiko
    • Investigation
      Serhiy Frolov, Volodymyr Orlov, Oleksii Boiko
    • Project administration
      Volodymyr Orlov, Oleksii Boiko
    • Supervision
      Oleksii Boiko