Currently, the development of the European deposit insurance scheme (EDIS) is one of the greatest remaining challenges for the banking union (BU). Its completion is limited by lack of consensus among eurozone countries on the costs and benefits associated with its financing. We approach this problem from an actuarial perspective by conducting a systematic study of the main reinsurance mechanisms (stop-loss (SL), quota-share (QS) and surplus (SP) reinsurances) to assess the level of participation in the losses of the agents involved (national deposit guarantee schemes (DGSs), the European deposit fund, and the proposed third-party agent or risk transfer instrument). To do this, we estimate the loss distribution of the EDIS with a simulation model of systemic bank losses using a sample of 2,008 banking institutions belonging to 19 BU countries in 2021. The main results show that reinsurance is an appropriate instrument for distributing losses in deposit insurance systems (DISs) and that the surplus reinsurance is an efficient and flexible instrument for the management of systemic risk. In addition, the proposal of a third-party agent and/or instrument sharing in the presence of such risk is necessary to cover the most extreme losses. These considerations can contribute to a more equitable distribution of the risk associated with deposits and facilitate the consolidation of the BU.
Martínez et al. (Mon,) studied this question.
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