moral hazard

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Opinion

Building a stable european deposit insurance scheme

Deposit insurance, like any insurance scheme, raises moral hazard concerns. Such concerns arising from European deposit insurance can be alleviated through a country-specific component in the risk-based premium for deposit insurance and limits on sovereign bond exposures on bank balance sheets. This column argues, however, that proposals to maintain national compartments in a new European Deposit Insurance Scheme are self-defeating, as such compartments can be destabilising in times of crisis.

By: Dirk Schoenmaker Topic: Finance & Financial Regulation Date: April 19, 2018