What makes depositors feel safe? Analyses of deposit guarantee scheme in the European Union

The level of harmonization of Deposit Guarantee Schemes (DGSs) obtained with Directive 94/19/EC and Directive 2009/14/EC was too low and a multiplicity of deposit insurance schemes are still maintained with wide variations in coverage level, deposit/depositor eligibility, payout procedures and funding mechanisms. Unfortunately, the wide variety of DGSs are not crisis-resilient and large government interventions are still necessary to deal with failing banks in order to restore depositors’ trusts and stop bank runs. The results of our analyses suggest that a pan-EU DGS should have a permanent scheme, with a high coverage limit, it should cover also foreign deposits, it should be administered also by a private authority (e.g. a central bank) and there should not be risk-adjusted insurance premiums.