Principles of a Two-Tier European Deposit (Re-)Insurance System. CEPS Policy Brief No. 287, 17 April 2013.

There is general agreement that banking supervision and resolution have to be organised at the same level. It is often argued, however, that there is no need to tackle deposit insurance because it is too politically sensitive. This note proposes to apply the principles of subsidiarity and re-insurance to deposit insurance: Existing national deposit guarantee schemes (DGSs) would continue to operate much as before (with only minimal standards set by an EU directive), but they would be required to take out re-insurance against risks that would be too large to be covered by them. A European Reinsurance Fund (EReIF) would provide this reinsurance financed by premia paid by the national DGSs, just as any reinsurance company does in the private sector. The European Fund would pay out only in case of large losses. This ‘deductible’ would provide the national authorities with the proper incentives, but the reinsurance cover would stabilize depositor confidence even in the case of large shocks. Ideally the national DGSs would be responsible also for resolution. Experience has shown banking systems are more stable if deposit insurers are also responsible for resolution. The approach proposed here could thus be also used to design the ‘Single Resolution Mechanism’ (SRM) which is being discussed as a complement to the ‘Single Supervisory Mechanism’ (SSM). It will of course take time to build up the funding for such a reinsurance fund. This approach is thus not meant to deal with legacy problems from the current crisis.

Banking system soundness is the key to more SME financing. Bruegel Policy Contribution 2013/10, July 2013

The SME access-to-finance problem is not universal in the European Union and there are reasons for the fall in credit aggregates and higher SME lending rates in southern Europe. Possible market failures, high unemployment and externalities justify making greater and easier access to finance for SMEs a top priority. Previous European initiatives were able to support only a tiny fraction of Europe’s SMEs; merely stepping-up these programmes is unlikely to result in a breakthrough. Without repairing bank balance sheets and resuming economic growth, initiatives to help SMEs get access to finance will have limited success. The European Central Bank can foster bank recapitalisation by performing in the toughest possible way the asset quality review before it takes over the single supervisory role. Of the possible initiatives for fostering SME access to finance, a properly designed scheme for targeted central bank lending seems to be the best complement to the banking clean-up, but other options, such as increased European Investment Bank lending and the promotion of securitisation of SME loans, should also be explored.