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.

The Revision of the Insurance Mediation Rules at EU Level and its Impact on Consumer Protection

The European Commission has put forward a new proposal for a directive on insurance mediation which should provide for significant changes in practices of selling insurance products and guarantee enhanced level of consumer protection. This proposal accompanies other regulatory initiatives in the insurance sector, all of them pursuing three main objectives: firstly, a strengthened insurance supervision with convergent supervisory standards at EU level; secondly, a better risk management of insurance companies; and thirdly a greater protection of policyholders. All these initiatives contribute to the EU programme on consumer protection and herald a new approach to EU insurance regulation and supervision. However, while the new supervisory rules are a direct response to the financial crisis and shortcomings of crossborder cooperation between national supervisors, the plans for the revision of insurance mediation rules were conceived much earlier due to scandals with mis-selling of insurance products in the United States and some EU Member States. This article will focus entirely on the Commission’s initiative in the consumer mediation area and the aspects of insurance supervision and risk management will be dealt with in separate articles.