The European level-playing field

1. The European level-playing field Sylvester Eijffinger Professor of Financial Economics at Tilburg University

2. Content • The European Level Playing Field • Deposit Guarantee Schemes • Financial Supervision in the EU

3. The European Level Playing Field • Bail-outs in various EU countries: The French versus the Dutch approach • Bail-outs in the United States: TARP I, TARP II, Private-Public Investment Plan • Bail-outs in emerging economies (G20): Chinese and other emerging state banks • Proposal for tax on banking system (G20): The French-German approach for the EU

4. Deposit Guarantee Schemes

5. Deposit Guarantee Schemes

6. Deposit Guarantee Schemes

7. Deposit Guarantee Schemes 1. Diversity of deposit insurance design in the European Union: • Coverage limit (rapid expansion in 2009, international element of DGS); • Funding (ex ante / ex post); • Source of funding (fixed/pro rata/risk based); • Management (private/joint/public). 2. Design matters: • Ex ante funded schemes, high government involvement in funding and management lower required deposit rates and weaken market discipline; • Co-insurance increases required deposit rates and strengthens market discipline. 3. Impact of DGS on bank risk taking interacts with monitoring by depositors: • Depositors discipline European banks that engage in excessive risk taking; • Banks’ interest expenses increase in bank risk. • Explicit deposit insurance reduces market discipline on European banks; • Reduction in the average deposit rate by around 0.017.

8. Financial Supervision in the EU • De Larosière Report and after: macro- and micro-prudential supervision in the EU • Macro-prudential supervision: ESRB/ECB and the availability of liquidity instrument • Micro-prudential supervision: CEBS,CESR and CEIOPS but not solvency instrument • No lead supervisor for EU-wide banks • No ex ante burden sharing but only MoUs