Cross-border banking and financial stability in the EU

Journal of Financial Stability 4 (2008) 168–204

Available online at www.sciencedirect.com

Cross-border banking and financialstability in the EU�

Robert A. Eisenbeis a,∗, George G. Kaufman b

a Federal Reserve Bank of Atlanta (retired), United Statesb Loyola University Chicago, United States

Received 21 February 2007; received in revised form 4 September 2007; accepted 26 September 2007Available online 12 October 2007

Abstract

This paper examines the implications that alternative regulatory structures may have for resolving failedbanking institutions. Emphasis on the European Union (EU), which is both economically and financiallylarge and has several features relating to cross-border banking in the form of direct investment that mayheighten the problems we consider. To ensure the efficient resolution of bank failures with minimum, ifany, credit and liquidity losses a four step program should be followed. This includes prompt legal closureof institutions before they become economically insolvent, prompt identification of claims and assignmentof losses, prompt reopening of failed institutions, and prompt re-capitalizing and re-privatization of failedinstitutions. These policies together with a prompt corrective action system could be voluntarily adoptedthrough the use of deposit insurance premium discounts as an incentive.© 2007 Elsevier B.V. All rights reserved.

Keywords: Deposit insurance; Supervision and regulation; Prompt corrective action

� Presented at a conference on Financial Instability, Supervision and Central Banks, sponsored by the Bank of Finlandand Journal of Financial Stability, June 7–8, 2007, Helsinki, Finland. An earlier versions was presented at the Third AnnualDG ECFIN Research Conference: “Adjustment under monetary unions: financial market issues,” September 7 and 8, 2006,Brussels, Belgium sponsored by European Commission Directorate General, Economic and Financial Affairs. It was alsoa longer version was presented at a conference on Prompt Corrective Action & Cross Border Supervisory Issues, at theFinancial Markets Group, London School of Economics, November 20, 2006 and published in Economic Studies andResearch, in Prompt Corrective Action & Cross-Border Supervisory Issues in Europe, Eds.: Harald Benink, Charles AEGoodhart and Rosa Maria Lastrsa, Financial Markets Group special Paper Series, Special Paper 171, London School ofEconomics, April 2007. A shorter version was published under the title Challenges For Deposit Insurance And FinancialStability In Cross-Boarder Banking Environments With Emphasis On The European Union was published in G. Caprio,D. Evanoff, G.G. Kaufman (Eds.), Cross-Border Banking: Regulatory Challenges, Singapore: World Scientific, 2006.

∗ Corresponding author. Tel.: +1 770 416 0047.E-mail address: [email protected] (R.A. Eisenbeis).

1572-3089/$ – see front matter © 2007 Elsevier B.V. All rights reserved.doi:10.1016/j.jfs.2007.09.004

mailto:[email protected]

dx.doi.org/10.1016/j.jfs.2007.09.004

R.A. Eisenbeis, G.G. Kaufman / Journal of Financial Stability 4 (2008) 168–204 169

1. Introduction

The conventional view is that foreign ownership of banks increases competition and efficiencyin the banking sector of the host country, reduces risk exposures through greater geographical andindustrial diversification, and enlarges the aggregate quantity of capital invested in the bankingsector. Foreign ownership of banks varies greatly among countries. In the European Union, forexample, Table 1 shows that in 2005 foreign ownership averaged 69% of country bank assets inthe 12 new EU member states as compared with only 33% for the older EU members.1,2

Despite the benefits that might accrue to foreign ownership, cross-border banking through eitherbranching or subsidiaries raises a number of important policy issues when financial instabilitythreatens. The key concerns center on the provision of deposit insurance, the effectiveness ofprudential regulation, the strength of market discipline, the timing of declaring an insolventinstitution officially insolvent and placing it in receivership or conservatorship, and the proceduresfor resolving bank insolvencies.3

Because the actual or perceived adverse externalities of bank failures may be large, it is impor-tant to evaluate how banking regulatory structures are likely to function within and across countriesat times of financial strain as well as at times when banks are performing well financially. Aneffective regulatory structure should not only foster competition and efficiency in good times,but also should aim to minimize the cost of any adverse externalities associated with bank insol-vencies. This would include avoiding the probability of adopting hasty, ad hoc, automatic reflexpublic policy measures once a crisis emerges that protects most if not all stakeholders against loss.

The most recent example is the UK’s response to the run on Northern Rock. While expedientsolutions may appear to minimize the cost of insolvencies in the short-run, they may do so only atthe expense of even higher longer-term costs because the necessary actions were not taken muchearlier. In addition, in the case of cross-border banking, competing interests of stakeholders inthe home country versus those in the host country can raise important agency problems that mayaffect how financially distressed banking organizations are resolved, the incidence of possibleexternalities associated with failure, and both the magnitude and the distribution of the costsamong affected parties when failures do occur.4

The benefits of cross-border banking conducted through foreign-owned banking offices havebeen analyzed intensely. However, the costs of cross-banking when financial difficulties ariseand the implications that alternative regulatory structures have for resolving those problems,have been analyzed far less. This paper extends the literature by examining these latter issuesin greater depth.5 Emphasis is on the European Union, which is economically and financiallylarge, is actively encouraging cross-border expansion, and has several features relating to cross-border banking in the form of direct investment that may heighten the adverse effects. It shouldbe emphasized that the issues being faced by the EU are not unique and are common to most

1 See European Commission (2005). The older EU country average for 2004 on a bank asset weighted basis was 16%.2 There are 27 countries in the European Union. These 27 countries with Iceland, Norway and Lichtenstein comprise

the European Economic Area. The focus in this paper is on the EU.3 The tax situation pertaining to the exemption from the VAT for financial services is also a problem, but isn’t considered

in this paper.4 See Dell’Ariccia and Marquez (2001) and Goodhart and Schoenmaker (2006).5 Reviews of the benefits appear in Caprio et al. (2006), Committee on the Global Financial System (2004), Goldberg

(2007) and Soussa (2004). Brief previous warnings about the unsettled state of affairs in cross-border banking appearin Goodhart (2005), Eisenbeis (2005), and Mayes (2005). See in particular the analysis of the Nordea Bank, which isheadquartered in Sweden but operates in a number of other countries in the appendix to Mayes (2005).

170 R.A. Eisenbeis, G.G. Kaufman / Journal of Financial Stability 4 (2008) 168–204

Table 1Percent of cross-border penetration of banks as % of assets

Country 1997 1999 2001 2002 2003 2004 2005a

Austria 3 2 19 21 20a 19 20Belgium 23 20 25a 24a 24a 23a 23Denmark 4 4 17 18 17 20b 21b

Finland 8 9 7 9 7 59 58France 7 6 13a 13a 11a 11a 12Germany 2 3 5 6a 6a 6a 11Greece 11 10 4 6 19 27a 28Ireland 46 50 60b 49b 46b 45b 43Italy 6 7 5 5 5 6 9Luxembourg 83 88 95a 94a 94a 94a 95Netherlands 5 4 10 9 2b 2b 2b

Portugal 13 13 24 24 26 26b 23b

Spain 9 7 9a 10a 11a 12a 11Sweden 15 29 6 6 7 8 9b

United Kingdom 25 26 50a 47a 50a 51a 52EU 15 weighted 13 13 15 15 15 16 NAEU 15 unweighted 17 19 11 12 14 23 33Bulgaria 18 44.7 70 72 82 83 NACyprus 20b 20b 21b 25b 28b

Czech Republic 68a 90a 92a 96a 96Estonia 91 90 89 98 99Hungary 55 53 57a 59a 59Lithuania 47 56 51 74 75Latvia 34b 39b 42b 44b 53b

Malta 49 42 40 39 32Poland 69a 68a 68a 67a 67Romania 20 48 55 56 58 62 62Slovenia 15b 16b 18b 19b 22Slovakia 80b 81b 94b 94b 97NEW EU 12 unweighted 61 61 64 71 69c

Source: Schoenmaker and Oosterloo (2006), includes subsidiaries and branches, and publications by country central banksand deposit insurance agencies, Hagmayr and Haiss (2006).

a Source: ECB (2006).b Excluding certain branches.c Excluding Bulgaria.

countries subject to cross-border banking. Indeed, the EU has attempted to harmonize policies,and for this reason may be ahead of other parts of the world in facing the problems. Nevertheless,the sooner all countries face up to the problems that cross-border crises bring, the less vulnerabletheir financial systems will be.

The paper proposes to use financial incentives in the form of differential deposit insurancepremiums to encourage cross-border institutions to voluntarily subject themselves to promptcorrective action and early intervention by responsible regulatory bodies. If successful, we believethat the negative externalities associated with financial institution failures will be substantiallymitigated. The proposals aim to prevent costs of bank insolvencies being shifted to taxpayers, tobetter control risk taking incentives by depository institutions, and to limit poor regulatory agencybehavior.


In the next section we describe the EU cross-border banking regulatory structure in greater depthto set the background for the subsequent analysis. Section 3 discusses agency problems that mayarise in the supervision and regulation of cross-border banking institutions in the EU. Section 4focuses on the problems of providing deposit insurance for institutions operating in a cross-borderenvironment. Section 5 looks at insolvency resolution in such an environment. Section 6 examinesissues concerning the speed and format of payout from deposit insurance plans and the resolutionof large bank failures. Section 7 suggests ways to solve the problems. Section 8 identifies waysthat the EU could begin to reduce the magnitude of these potential problems by encouraging theimplementation of prompt corrective action (PCA) and structured early intervention and resolution(SEIR) with a legal closure rule at positive capital by the respective home country. The last sectionis a summary and conclusion.

2. Key features of EU financial regulatory and deposit guarantee systems

The European Union is in the midst of an economic transition from a collection of separatecountry economies into a single economic market. As part of this integration, the Masstricht Treatyof 1992 established the ground work for introduction of the euro in 1999 and establishment of theEuropean Central Bank. But it left to the individual member countries responsibility for bankingsupervision and regulation, financial stability, lender of last resort functions, and the provision ofdeposit insurance guarantees.6

To encourage the development of a single economic market for banks, the Second BankingDirective (1988) (as modified in 1995 and consolidated into Directive 2000/12/EC of the EuropeanParliament and of the Council of 20 March 2000) established three principles—harmonization,mutual recognition and home country control.7 Together with the concept of a single bankinglicense, these three principles mean that, once a banking institution receives a charter from an EUmember state, it would be permitted to establish branches anywhere within the EU without thenecessity of review by the regulators in the host countries into which it expanded. When entrytakes place in a host EU country by way of a separately chartered subsidiary, rather than througha branch office, the host country is responsible for supervision and regulation of that entity, sinceit is the home country for that subsidiary. At the same time, supervision of the consolidated entityremains the responsibility of the home country.

The EU financial regulatory system relies on common principles and coordinated approachesthat would be followed when institutions experience financial difficulties. While establishing min-imum prudential standards and providing for roughly comparable rules, substantial differencesexist in terms of the details of how the safety net is structured across countries as well in terms ofthe types of deposits and amounts that would be insured. A logical implication of the home coun-try approach is that regulatory competition and regulatory arbitrage by cross-border institutionsbecome more likely as the competitive climate increases and more and more cross-border bank-ing evolves. These differences create important differences in how nations might respond should

6 See Walter (2001) and Mayes and Vesala (2005).7 Harmonization requires that a minimum set of uniform banking regulations be adopted across the Union. Mutual

recognition means that during the transition to a single market, member countries would honor the regulations andpolicies of the other member states. Finally, regulation and supervision by the “home country” (country of charter) haveprecedent over regulation and supervision by a “host country.”


large cross-border institutions get into financial difficulty.8,9,10 Similarly, these same forces shouldfacilitate and continue to drive Europe toward a truly single market environment.11,12 However,others have argued and will be seen in the next section that such a structure is fraught with problemsand conflicts that may erupt when significant intuitions experience financial difficulties.13

3. Cross-border agency problems and conflicts

Cross-border banking through foreign-owned branches or subsidiaries can subject the enteringinstitutions to multiple regulatory jurisdictions and regulators, as well as to many different legalsystems. As a consequence, operating across borders presents potential problems for such banksbeyond the fact that there are just more regulations to follow or regulators who may have differentincentives.14 Bank laws can differ greatly and may even be conflicting across the different coun-tries. Therefore, regulatory compliance may be uncertain and difficult for banking organizationswith multiple country operations. Furthermore, bank supervisors and regulators in both home andhost countries typically operate in what they consider is the best interest of their country, howeverdefined or perceived (Bollard, 2005).15 This can lead to significant agency problems to the extentthat the incentives of the regulators, deposit insurance provider and/or failure resolution entityare typically aligned with the residents of the regulators’ home or host country rather than withthe interests of the bank’s customers or customers in the whole market or geographic area withinwhich the institution operates.

8 For example, while Directive (2006/49/EC) of the European Parliament and of the Council lays out how to implementBasle II, numerous national discretions exist as to how Basle II may actually be applied in practice.

9 The EU regulators have anticipated the need for supervisory efforts to head off the insolvency of a “systemicallyimportant” bank. See Gulde and Wolf (2005) for a review of the financial stability responsibilities in Europe. Shoulda institution experience financial difficulties requiring lender-of-last resort assistance in amounts greater than a given,but confidential, threshold, then approval is required by the Governing Council of the ECB, presumably because a largeinjection of liquidity might have implications for monetary policy. While the ECB does not presently have formal lenderof last resort authority, Gulde and Wolf (2005) suggest that there is a window of opportunity through the ECB’s paymentssystem responsibilities to provide such funding.10 See Memorandum of Understanding on Cooperation in Financial Crisis Situations that announced in a press

release (May 14, 2005) and Press Release, “Memorandum of Understanding Between the Banking Supervisors,Central Banks and Finance Ministries of the European Union in Financial Crisis Situations,” May 14, 2005,http://www.ecb.int/press/pr/date/2005/html/pr050518 1.en.html) The MOU is not a public document.11 The recent discussions over where a merged Barklay’s/ABN AMRO would be headquartered center on differences in

regulatory climate and oversight as a key determinant. The merger subsequently fell through.12 Kremers et al. (2003) recognize the importance of the existence of certain of these conflicts involving systemic

supervision (the lender-of-last resort) and prudential supervision in comparing the supervisory structure adopted in theNetherlands and the United Kingdom.13 Indeed, Mayes (2006) suggests it is just these concerns that have prompted the Nordic countries to layout specific

responsibilities in the advance of the onset of a financial crisis, should the dominant institution in those countries – NordeaBank – get into financial difficulties.14 See Eisenbeis and Kaufman (2005) for a detailed discussion of these issues.15 This problem has arisen in France with the country’s attempt to preserve Credit Lyonnais with injections of govern-

mental funds in more than three separate instances in the past several years. More recently, an editorial in the Wall StreetJournal Europe (2005) entitled “Spaghetti Banking” pointed out that the governor of the Bank of Italy had refused toapprove the acquisition of a single Italian bank by a foreign institution for the last 12 years. The governor indicate his desireto “. . . preserve the banks’ Italianness also in the future . . ..” This protectionism was challenged by the European Union’sInternal Market Commission in connection with the proposed acquisitions of two Italian banks by ABN Amro and BancoBilbao Vizcaya Argentina, and the governor of the central bank was ultimately forced out amid criminal investigationsassociated with the blockage of the proposed transactions.

http://www.ecb.int/press/pr/date/2005/html/pr050518_1.en.html


Schuler (2003) points out that the incentive conflicts actually have two dimensions—a homecountry dimension and an international or cross-border dimension. First, with respect to the homecountry issues, self-interest and incentive problems of the classical principal/agent type existbetween the banking supervisors and taxpayers. Regulators have incentives to pursue policies thatpreserve their agencies. In addition, they also pursue their own private self-interests to ensure theirjobs, their future marketability and employment in the banking industry.16 These conflicts maylead to the adoption of more accommodating policies in the form of lower than appropriate capitalrequirements and to regulatory forbearance when institutions get in trouble, thereby potentiallyshifting risk and any associated costs ultimately to taxpayers as regulators attempt to ingratiatethemselves with constituent banks.

Second, with respect to cross-border banking, as foreign banking organizations begin toincrease their EU market share through the establishment of branches (as distinct from expansionvia subsidiaries) in the host country, host country regulators face a loss of constituents to super-vise and regulate. As noted, EU policy specifies that home country regulators are responsible forsupervision and regulation of institutions chartered in their country regardless of the location oftheir braches. At the same time, the host country is responsibility for financial stability within itsboundaries. One consequence of this structure is that individual country regulators have a countrycentric focus, which may be manifested in several dimensions. Nationalistic concerns, may leadto a home country bias. Regulators tend to favor domestic over foreign institutions and attempt tolimit the acquisitions of indigenous banks, or move to create “national” champions which wouldbe protected from outside takeover.17 The European Council recognizes the problem and recentlyproposed changes in directives governing supervisory overview of proposed cross-border acqui-sitions to limit the range of objections that may be used to deny acquisitions as well as to constrainregulators’ ability to engage in delaying tactics before acting on acquisitions.18

In the short-run, institutions with the more favorable home country regulatory environment willlikely expand at the expense of those institutions with more stringent operating environments,and this may also occur in the longer-term if the restrictions impose costs rather than lead tohealthier institutions. Thus, different regulatory and supervisory regimes, whether de jure or defacto, create regulatory arbitrage opportunities.19

Adding to the problem is that the quality of host country monitoring and supervision maybe reduced with the entry by foreign branches or subsidiaries. Both, host country regulators andthe markets in these countries are generally less able to obtain useful financial information fromforeign-owned institutions than they are from domestic domestically owned banks (Committeeon the Global Financial System, 2004).20 This concern is especially acute for foreign brancheswhich do not have meaningful balance sheets or income statements separate from the bank as awhole. This makes monitoring difficult for the host country regulator. High quality and timelyinformation is critical when foreign branches come to control a large share of the host country’sdeposits, as is the case for many of the accession countries, because the host country is still

16 See Kane (1991, 1989), Schuler (2003), and Lewis (1997).17 The French, Polish and Italian authorities have, in the recent past, attempted to limit acquisitions of their large

institutions.18 On March 27, 2007 the Council of the European Union approved draft amendments to directives 92/49/EEC,

2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC (7734/07 (Presse 59)).19 Kane (1977).20 Differences in quality can exist simply because countries fund their banking regulators differently or because they

have had only limited experience in supervising market entities.


responsible for financial stability and the lender of last resort function. In the case of subsidiaries,since they are separate legal entities, they would have balance sheets and income statements thatwould be available to the regulator in the country in which they were chartered. However, inthe EU, because the home country is responsible for the consolidated supervision of the parentbanking entity, the chartering agency for the subsidiary will still experience information problemsto the extent that it may be unaware of, or have difficulty in obtaining information on, problemsin other parts of the banking organization that may have implications for the viability of eitherthe parent or its subsidiary.

Schuler (2003) argues that this problem of information access issue constitutes a form of agencyproblem between the home and host country regulator. The home country regulator, particularlyif its monitoring and performance is weak, may be incented to disguise its poor performance byeither producing disinformation on the performance of foreign branches or be less than diligentin supplying the host country regulator with timely information. Without adequate and timelyinformation, the host country may be in a poor position to assess the potential risks or externalitiesits citizens and economy may be exposed to from its foreign branches. These incentive conflictsmay be especially acute in host countries with a large foreign banking presence, particularly insmall economies where a foreign bank may be a significant player, but where those operations arerelatively small compared to those in either its home country or elsewhere.21 As Table 1 suggests,many of the new EU entrants likely face this problem.

The information problems are likely to become increasingly significant as banking organiza-tion expand and consolidate many of their management and record keeping functions to achievecost efficiencies. In the electronic age, institutions are increasingly being managed on a consoli-dated or integrated basis from the home country. Niemeyer (2006) noted recently that “. . .banksare progressively concentrating various functions, such as funding, liquidity management, riskmanagement and credit decision-making, to specific centres of competence in order to reap thebenefits of specialization and economies of scale.” Furthermore, data and records are usuallykept centrally at the home offices or at sites not necessarily in the host country. Large complexbanking organizations in particular are actively centralizing activities and either outsourcing ormaintaining separate operating subsidiaries whose purpose is to provide critical infrastructure orother functions to their bank subsidiaries.22

The logistics and costs to host country regulators of quickly accessing information on thesearrangements, or even finding it, can be daunting, even when the foreign banking organizationenters by way of a bank subsidiary rather than a branch. The necessary senior management,operating records, and computer facilities may be physically located in the home rather thanin the host countries or in separately owned and operated affiliates and subsidiaries in thirdcountries Should a foreign-owned institution become insolvent and be legally closed and placedin receivership, it may not be possible to keep those portions of the institution’s operations inthe host country physically open and operating seamlessly during the resolution process in anattempt to limit any adverse consequences that may accrue to deposit and loan customers.23 For

21 Schoenmaker and Oosterloo (2005) discuss some of the externalities associated with cross-border supervision of banksin the EU.22 Schoenmaker and Oosterloo (2006) and Goodhart and Schoenmaker (2006) make similar observations about this cen-

tralization trend and include, in addition to functions mentioned above, internal controls treasury operations, complianceand auditing.23 New Zealand addressed this problem by requiring subsidiaries to be structured in such a way that if the parent becomes

insolvent, solvent subsidiaries can be operated effectively without interruption in terms of capabilities and management.This may deny them the full benefits of economies of scale, scope and risk management(Bollard, 2005).


these reasons, regulatory oversight and discipline is likely to be more difficult and less effectivein host countries with a substantial foreign bank presence than in countries without this presence.The resolution process is also likely to be more difficult and less efficient. Perception of theseproblems is likely to heighten incentives on the part of host country regulators to seek to protecttheir own citizens at the expense of home country or other host country citizens.

With respect to the international dimension to the agency problem, home country regulatorsmay take insufficient account of how the externalities that a failure, and the way that it is resolved,may affect the host country. That is, because all the regulators in countries in which a bankingorganization operates may have different objective functions and incentives, they may not all bepulling in the same direction at the same time with respect to prudential supervision and regulation.And these conflicts may be important, even when there exist coordinating bodies or agreementsand understandings as to principles, such as in the European Union. As noted earlier, the homecountry is responsible for monitoring the performance of its chartered institutions, includingthe foreign branches of those institutions operating in other countries, but the host country isresponsible for financial stability.24 When a crisis arises, responsible parties may not have had aclear delineation ex ante of responsibilities between the home and host country nor anyway ofenforcing those agreements that may have been made ex ante. EU MOUs are merely agreementsand lack enforceability under law. Regulators may take conflicting actions to benefit their owncountry’s residents or institutions, say, with respect to the nature and timing of any sanctionsimposed on a bank for poor performance, the timing of any official declaration of insolvency andthe associated legal closing of the bank, the resolution of the insolvency, or the timing and amountof payment to insured and uninsured depositors.25,26

We would expect that the incentives are for a country regulator to favor indigenous institutionsand customers. Hence the potential agency problems are likely to become more significant inmarkets and economic areas that are becoming increasingly integrated, as in the European Union,or that may be experiencing an influx of outside entry. Indeed, the incentives may also varydepending upon simply the differing degree of cross-border activities that may exist, as betweenthe new and original members of the European Union.

Until recently, cross-border banking has proceeded at a rather slow pace, especially within theEU-15, but as financial integration accelerates, more cross-border mergers are likely to take place,and many institutions will be bought by institutions from other countries.27 Table 1 shows thatthe degree of cross-border penetration within the EU rose at a modest pace from 13% of bankingassets in the 15 old member states in 1997 to only about 16% in 2004. But penetration in individual

24 The Sveriges Riksbank (Bank of Sweden) recently raised the question “How much responsibility home countries arewilling to take for financial stability in other countries where a bank operates. For example, the Nordea Group is a Swedishbank that has its largest market share in Finland. Would the Swedish authorities be willing an able to judge Noreda’simpact on stability in Finland? And would the Finnish authorities be prepared to transfer responsibility for a considerablepart of its financial system to Sweden? Similar problems exist in other countries. “(Sveriges Riskbank (2003), p. 2.25 A classic case of just such a decision occurred in the Herstadt Bank failure in which German authorities closed the

institution at the end of the business day in Germany, but before all the bank’s foreign exchange transactions had settledwith counter parties in other time zones. While not affecting the total amount of loss, the timing of the legal closure didshift losses, either intentionally or not, from holders of mark claims on the bank, primarily German depositors, to thoseexpecting to receive dollars from the bank, primarily US and UK banks later in the day.26 In the US, such conflicts have existed among state regulators and among federal banking regulators despite a national

mandate to coordinate regulatory and supervisory policies and the existence of the Federal Financial Institutions Exami-nation Council.27 In New Zealand, for example, there are effectively no indigenous banks at all.


Table 2Relative size of old and accession economies

Country name Income group GDP 2006 purchasingpower parity basis(billion)

EU GDP share 2006purchasing powerparity basis

GDP per capita 2006purchasing powerparity basis

Old membersAustria High income $283.0 2.14% $34,600Belgium High income $342.8 2.62% $33,000Denmark High income $201.5 1.54% $37,000Finland High income $176.4 1.35% $33,700France High income $1,891.1 14.48% $31,000Germany High income $2,630.0 20.14% $31,900Greece High income $256.3 1.96% $24,000Ireland High income $180.7 1.38% $44,500Italy High income $175.6 1.34% $30,200Luxembourg High income $33.9 0.26% $71,000Netherlands High income $529.1 4.05% $32,100Portugal High income $210.1 1.61% $19,800Spain High income $1,109.0 8.49% $27,400Sweden High income $290.6 2.23% $32,200United Kingdom High income $1,930.0 14.78% $31,800

New membersBulgaria Upper middle income $78.7 0.60% $10,700Cyprus High income $18.0 0.14% $23,000Czech Republic Upper middle income $224.0 1.72% $21900Estonia Upper middle income $26.9 0.21% $20,300Hungary Upper middle income $175.2 1.34% $417,600Lithuania Upper middle income $54.4 0.42% $15,300Latvia Upper middle income $36.5 0.28% $12,800Malta High income $8.4 0.06% $21,000Poland Upper middle income $552.4 4.23% $14,300Romania Upper middle income $202.2 1.55% $9,100Slovak Republic Upper middle income $99.2 0.76% $18,700Slovenia High income $47.0 0.36% $23,400

Source: CIA, The World Fact Book 2007.

countries varied significantly from a high of 89% in 2004 for Luxembourg to a low of 5% forGermany. The admission of 12 new countries changes the landscape, and potential cross-borderissues significantly, since the degree of foreign penetration is much greater on average for thenew members states. Foreign ownership in the accession countries was 58% of assets in 2004,with a high of 98% for Estonia and a low of 23% for Cyprus. These countries are typically smallin terms of GDP relative to the original EU countries (Table 2). The largest of these new entrantsis Poland, which accounts for only 41⁄4% of the EU’s GDP. Of course, several of the older EUmembers are relatively small as well—seven have less than a 2% GDP share each. Because ofthe relative importance of cross-border banking to the accession economies, and the relativelysmaller size of their economies, compared to the rest of the EU, the potential externalities of thefailure of large banks operating within these host countries could be very significant.

From the home country perspective, the incentives are not only to pay less attention to theexternalities that failure may impose on host countries, but also to protect home country residentsfrom possible costs of failure. These incentives may be especially significant with respect to the


provision of deposit insurance, which in the EU is primarily the responsibility of the home country.These issues are considered in the next section.

4. Deposit insurance

In the European Union, the Deposit Guarantee Schemes Directive (DGD) (94/19/EC) providesthe basic framework for the structure of how deposit insurance guarantees will be provided. TheDGD endorsed a decentralized approach to deposit insurance, despite the fact that depositoryinstitutions are authorized to operate within any of the member countries. The design leaves theresponsibility of providing coverage to depositors and the particulars of the scheme adopted atall branches domestically and foreign to the member home countries where a bank is chartered.The DGD specifies the basic features that an acceptable deposit insurance scheme must have.Most specifically, the system must provide deposit insurance coverage of 20 thousand euros,must exclude coverage of inter-bank deposits, and may exclude other liabilities at the discretionof the national government. Co-insurance of liabilities is permitted but not required. Coverageof depositors in branches in countries other than the home country is the responsibility of thehome country, but these can also be covered by the host country at its option. Additionally, shouldthe host country account coverage be greater than that available to a branch thorough its homecountry deposit insurance scheme, the foreign branch may purchase top-up coverage to matchthat available to competing host country-chartered institutions.28 There may be more than onescheme for different types of institutions. But most terms of the deposit insurance structure arenot prescribed, and the details of the schemes are left to the discretion of the individual membercountries.29 These include the funding of the plans, pricing of coverage, who should operatethe plan (the private sector or public sector), how troubled institutions should be handled, whattoo-big-to-fail policies in terms of protecting de-jure uninsured claimants might or might not bepursued, or how conflicts would be resolved where two deposit insurance funds might be affectedby failure of an institution with top-up coverage (see Dale (2000) and Garcia and Nieto (2005)for descriptions of the existing arrangements in the EU).

In establishing the minimal requirements for deposit insurance schemes, the attempt was obvi-ously to balance the fact that most but not all original EU members already had deposit insuranceplans in place and that many of the key provisions and features of there programs were different.Presumably, the best that could be hoped for was that the schemes would be harmonized overtime. Until then, the potential for cross-boarder problems, at least in the short-run, appear reason-ably small because there are few truly multinational institutions in the EU. The plans that wereput in place by individual countries in order to comply with the DGD varied substantially fromthose already in place. Finally, responsibility for supervision and risk monitoring is apportioneddifferently across the system and within the different countries.

Whatever the differences, it was not intended that institutional detail and plan features wouldserve as a source of competitive advantage within host or home countries. However, Huizinga andNicodeme (2002) demonstrate that within the guidelines established by the EU, the discretionarydifferences in insurance system design have affected international depositor decisions as to theplacement of their funds. In particular, countries with schemes with low premiums, no ‘co-insurance and private administration are more attractive to international depositors. But more

28 This also means that if home country insurance is superior in other features to that provided generally in the hostcountry, then the branch would have a competitive advantage relative to institutions chartered in the host country.29 For a brief review see European Commission (2005) and European Parliament (1994).


relevant to this study, they also suggest that “. . . countries can in principle tailor their depositinsurance systems to allow their banks to capture a larger market share in the international depositmarket. This could lead to international regulatory competition in the area of deposit insurancepolicies.”30

Hence it is reasonable to be concerned that the structure of these systems, including theirfinancing and the way that claims will be settled create agency problems between host and homecountry citizens and the management of deposit guarantee schemes that may significantly impactthe efficiency of resolving insolvent banks at minimum cost to the host country. Going forwardthe patchwork set of deposit insurance schemes, when coupled with the bifurcated approach tocontrolling systemic risk, seems fraught with the potential for agency and conflicts of interestproblems (see Kane et al. (2003)). These arise from several sources including:

1. Uncertainties about the funding of the deposit insurance plans,2. Differences in deposit insurance coverage and pricing of coverage,3. Reliance upon the home country, as opposed to the host country, should institutions get into

financial difficulties,4. Differences in treatment with respect to the lender-of-last-resort function,5. Differences in approaches to bankruptcy resolution and priority of claims in troubled institu-

tions and6. Differences in European monetary union vs non-European monetary union participants.

EU countries must establish policies for how foreign banks operating in the country will betreated. The EU directives require that host country chartered or licensed subsidiary banks offoreign parents receive treatment equal to that accorded chartered domestic banks in the country.Eisenbeis and Kaufman (2006) suggest that it may not be appropriate to provide the same treatmentfor branch offices of foreign banks as for subsidiaries, especially when top-up insurance is providedor the branches themselves are also insured in the host country.31 Host country monitoring, forreasons discussed earlier, is not likely to be as effective as home country monitoring, because lessmeaningful financial reporting information from domestic branches of foreign banks is available.Even if information from the home country about the entire legal entity were available, hostcountries are unlikely to be able to take actions against any banks outside their own jurisdiction.Finally, the potential losses to uninsured creditors and to the deposit guarantee fund depend asmuch upon the home country closure and resolution policies as on the financial condition of theinstitution.

The more insolvent an institution is before it is legally closed and placed in receivership, thegreater are the losses to the insurance funds and possibly taxpayers. For this reason, host countriesmay become more reluctant to provide insurance for foreign branches, because they have littleif any control over the timing of legal closure Despite this, several EU countries not only haveeither an insurance option for EU and/or branches of institutions chartered in non-EU membercountries, but also offer top-up options when the home country deposit guarantee plan is less thanin the host country. This exposes host country insurance funds to “regulatory risk” because theclosure decision and any losses to the host country insurance fund depend upon actions of thehome country regulator.

30 Huizinga and Nicodeme (2002), p. 15.31 Eisenbeis and Kaufman (2005) discuss in detail differences in the implications of entry by branches as opposed through

establishing subsidiaries.


Table 3 shows that there are differences across EU countries in their insurance treatment offoreign branches and deposits. Most countries enable foreign branches to elect to be insuredby their deposit insurance funds, and some provide insurance of foreign deposits as well, withmost, but not all, being limited to foreign currency deposits of other EU member countries.Some countries also permit foreign operated branches to purchase additional insurance, wheninsured in their home country, if the host country’s insurance scheme is more generous. Table 4details the differences that exist in insurance coverage across the Euro area. Several countries,including France, Italy and Germany, are substantially more generous in their coverage than theminimum coverage of 20 thousand euros, Tables 5 and 6, which summarize other aspects of depositinsurance provisions in EU countries, also suggest that many of the attributes that Huizinga andNicodeme (2002) found to be important to international depositors, such as co-insurance andprivate administration, vary substantially across EU countries.

Table 7 shows that there are both substantial differences in the legal requirements for payingdepositors at closed insolvent insured institutions and differences when they have actually beenpaid.32 33 Moreover, even if the countries use the same currency, e.g., euros by Euroland countries,if taxpayers in the home country are required to fund some or all of the insurance, they may bereluctant to make payments to depositors in other EU countries. Despite EU directives whichrequire universality in the treatment of all EU depositors in all EU countries, the Sveriges Riksbank(2003, p. 87) noted recently that” . . . if a cross-border [branch bank] were to fail, it is improbablethat either politicians or authorities in the respective countries would be willing to risk taxpayers’money to guarantee stability in countries other than their own.” This could prompt the concernedcountries to try to ring-fence the bank’s assets in their own country with a view to minimizing thecosts to the domestic economy, or not to intervene at all in the hope that other countries in whichthe bank has a bigger presence feel forced to act. The result could be a suboptimal resolutionof the crisis that proves more costly or that produces greater adverse effects for all the countriesinvolved.

When a large number of foreign branches from different home countries coexist in a hostcountry, bank customers in that country may encounter a wide variety of different insuranceplans. These plans are likely to differ, at times significantly, in terms of account coverage, pre-miums, insurance agency ownership (private vs. government) and operation, ex ante funding andcredibility.34 Table 8 provides a general tabulation of the kinds of differences that can and doexist within the EU, despite the attempts to ensure uniformity. At the same time, host countryregulators encounter banks operating under a wide array of different foreign banks and differentrules and regulations.

If the home country provides the insurance and pays losses to depositors in branches oper-ating in other countries, it is likely to demand at least some prudential regulatory jurisdictionover the activities of those branches in host countries. If this authority is exercised, this mayimply different regulatory regimes with potentially different sanctions coexisting for a branch ina host country. Moreover, if a branch has top-up insurance, then depositors of the branch will facepotentially different rules and availability for those portions of their deposits covered by the homecountry deposit guarantee scheme than for those deposits covered by the host country scheme.

32 Because many countries permit several extensions of the payment deadlines, this probably explains the differencebetween the legal payout requirements and actual performance.33 Within the European Union, of course, there are countries that have the euro but others that aren’t part of the Economic

and Monetary Union and have their own currencies.34 Many of the specific differences have already been detailed in Tables 3–6.


Table 3Deposit insurance characteristics by countrya

Country name Deposit insurance coverage of foreign institutionsand deposits

Old membersAustria: Einlagensicherung der Banken & Bankiers

Gesellschaft m.b.H.Only accounts denominated in euros and currenciesof other EEA countries

Belgium: Deposit and Financial Instrument ProtectionFund

Only accounts denominated in euros and currenciesof other EEA countries

Denmark: The Guarantee Fund for Depositors and Investors Foreign currency deposits are covered if made inDenmark

Finland: Finnish Deposite Guarantee Fund Foreign currency deposits are covered if made inFinland

France: Deposit insurance (warranty) Fund Foreign deposits are covered but only accountsdenominated in euros and currencies of other EEAcountries

Germany: The German Private Commercial BanksCompensation Scheme for Depositors and Investor(there are other schemes in Germany as well)

Foreign deposits are covered if made in Germany

Greece: Hellenic Deposit Guarantee Fund Insurance covers deposits in branches in EU and inbranches of non EU countries unless equivalentcoverage is available to those branches

Ireland: Deposit Protection Scheme All deposits made in IrelandItaly: Interbank Deposit Protection Fund The Interbank Deposit Protection Fund also

compensates the depositors of foreign branches ofItalian banks. In the case of Italian banks operatingin EU countries, the amount of compensation cannotexceed the protection guaranteed by the hostcountry.

Luxembourg: The Luxembourg Deposit GuaranteeAssociation

Foreign deposits are covered

Netherlands: Collective Guarantee Scheme (CGS) Foreign deposits are covered but only accountsdenominated in euros and currencies of other EEAcountries

Portugal: Deposit Guarantee Fund Deposits are guaranteed regardless of the currencyin which they are denominated, and whether thedepositor is resident or non-resident in Portugal

Spain: Deposit Guarantee Fund for Banking Institutions Foreign deposits in Spain or in institutions fromanother member state of the European Union,whatever the currency in which they aredenominated, with the exclusion of those depositedby financial institutions, public administrations andcertain other persons linked to credit institutions inany of the ways envisaged in the regulations.

Sweden: Deposit Guarantee Board All deposits made in Sweden are coveredUnited Kingdom: Financial Services Compensation

Scheme (FSCS)All deposits in euros or EEA currencies are covered

New membersBulgaria: Bulgarian Deposit Insurance Fund Foreign deposits in banks insured by the BDIF are

coveredCyprus: Deposit Protection Scheme NoCzech Republic: Deposit Insurance Fund Foreign deposits are covered but compensation for

foreign exchange deposits is disbursed in the Czechcurrency


Table 3 (Continued )

Country name Deposit insurance coverage of foreign institutionsand deposits

Estonia: Deposit Guarantee Fund Deposits of foreign credit institutions are guaranteedHungary: National Deposit Insurance Fund of Hungary YesLithuania: State Company ”Deposit and Investment

InsuranceDeposits of branches of EU headquarteredinstitutions are eligible for insurance. Excludeddepositors’ deposits are deposits held with thedaughter banks of Lithuanian banks or divisions ofthese banks operating beyond the territory of theRepublic of Lithuania. Deposits in currencies offoreign countries that are not members of theEuropean Union, with the exception of the USA, arenon-insurable.

Latvia: Deposit Guarantee Fund YesMalta: Depositor Compensation Scheme YesPoland: Bank Guarantee Fund YesRomania: Deposit Guarantee Fund in the Banking System YesSlovak: Republic Deposit Protection Fund (DPF) YesSlovenia: Deposit Guarantee Scheme Yes

Source: Hall (2001) and Table 9 Sources. (In general deposit guarantees for foreign deposits comply with EU standards.)a Austria has four different funds, Germany has six funds, Italy has three funds, Portugal has two funds, Spain has three

funds. In each case the main insurance funds for commercial banks or credit institutions is listed.

In the EU, many but not all members require or permit topping up. But even here, provisionsdiffer. Some countries, such as Malta only cover the difference between coverage provided inthe home country, while others provide duplicate insurance. The situation becomes more com-plex and confusing as the number of countries with banks operating branches in a host countryincreases.

5. Insolvency resolution and deposit insurance problems

As financial integration proceeds, and in particular as cross-border bank expansion increases,even what may appear to be small differences between schemes may be magnified. Equallyimportant, differences in the guarantee arrangements may generate significant cost shifting whena troubled institution needs to be closed and resolved. There are generally two different legalmodels for dealing with banking insolvency. The differences generally focus on the special rolethat deposit insurance and banking supervisors play and the supervisor’s ability to intervene ina bank’s activities before failure occurs. In the US, special bankruptcy laws apply, whereas inEurope, the general bankruptcy statutes tend to apply (Hupkes, 2003 and Bliss and Kaufman,2006, 2007). A few countries authorize the banking supervisory agency the right to petition forbankruptcy. The EC Directive 2001/24/EC of April 4, sets forth EU policy for how failed banks(credit institutions) are to be resolved.35 The intent is to create a common approach to insolvencyresolution. It leaves the actual closure decision to each home country and its applicable bankruptcyprocedures, but the Directive attempts to promote equal treatment for creditors, regardless ofwhere they are located. Harmony is to be achieved through mutual recognition of both home

35 Krimminger (2005).


Table 4Insured deposits by country in the EU

Country name Deposit insurance coverage

Old membersAustria 20,000 eurosBelgium 20,000 euros on deposits and 20,000 euros for financial instruments for a total of 40,000

eurosDenmark DKK 300,000 deposits covered net of loans (about 40,000 euros)Finland FIM 150,000-up to 25000 euros, deposits will be covered in full if depositor demonstrates

that the deposit represented the sale of a residence.France 70,000 eurosGermany 30% of bank’s equity capital (all non-bank deposits are covered up to a limit of 30% of the

liab. capital with a minimum limit is 1.5 million euros, and given that the average equitysize of a commercial bank is 295.5 million euros, the average limit is around 90 millioneuros); official coinsurance 90% to 20,000 euros

Greece 20,000 eurosIreland 90% of 20,000 eurosItaly ITL 200 Mil.- equivalent to 103,291 eurosLuxembourg The total amount of the Guarantee will in no case exceed 20,000 euros (deposit guarantee)

+ 20,000 euros (investor compensation) = 40,000 euros per customerNetherlands 20,000 euros and up to 90% of amounts between 20,000 euros and 40,000 eurosPortugal 25,000 eurosSpain 20,000 eurosSweden SEK 250,000United Kingdom 100% of first £2000 and 90% of next £33,000

New membersBulgaria 39,200 lev (about 20,043 euro)Cyprus Cyprus equivalent of 20,000 eurosCzech Republic 90% with max coverage of 25,000 euros equivalentEstonia 12 782 euros/EEK 200 000 effective from December 31, 2005 20,000 euros/EEK 313 000

effective from December 31, 2007 at the latestHungary 20,000 euros/HUF 6,555,555 at EU accessionLithuania Currently 14,481 euros/LTL 50,000, 17,377 euros/LTL 60,000 from 1/1/07 but as of

January 1, 2008 coverage will be 20,000 eurosLatvia 8535 euros/6000 lats at present, 12,802 euros/9000 lats from 12/31/07, 18,492

euros/13000 lats from 12/31/08Malta Euros 20,000, about 8600 Maltese liraPoland Since 2003 the Fund’s guarantee has covered in 100% monies up to a sum of PLN

equivalent of 1,000 EUROS, and in 90% the sums between the value of 1,000 to 22,500euros (counted inclusively regardless of the number of contracts concluded between thedepositor and the bank).

Romania Presently paid in ROLs equivalent to 20,000 euros in 2007Slovak Republic 90%, not to exceed 20,000 eurosSlovenia 5,100,000 tolars,5,1 mio SIT (per depositor per institution)

and host country bankruptcy procedures and coordination among authorities. Krimminger (2005)indicates that conflicts are supposed to be resolved through a mediation process that conveysthat responsibility to the home country. Hupkes (2003) indicates that in most countries in the EUbank insolvencies are covered under the general bankruptcy statutes, but several countries provideexceptions and a few EU countries have separate bankruptcy statutes for banks. Some authorizethe banking supervisory agency the right to petition for bankruptcy.

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Table 5EU deposit insurance fund governance and funding

Country name Funding Premiums Administration

Old membersAustria Government/private funding-no permanent

fund-ex post fundingNot risk based – pro rata, ex post assessments onprotected deposit base

Managing directors elected by General assembly withrepresentation from each trade association. Areaccountable to General Assembly

Belgium Government/private funding. Gov’t can providelimited funding to what is a permanent fund

Not risk based – flat rate of 0.02% but if fund liquidassets fall below critical level premiums may beraised by 0.04%

Joint Private/Official

Denmark Capital must be at least DKK 3.2 billion(thousands of millions). Any of three separatefunds may, if necessary and within prescribedlimits, borrow from the other sections. Inaddition, the Fund may raise loans if its capitalis insufficient. There is -permanent fund

Not risk based – flat rate levy with max rate of 0.2%of covered deposits

Joint Private/Official

Finland Fund members pay an admission fee equal toone-tenth of the total amount of the expenses ofactual operations of the Fund for the previousfinancial period, but at least 17,000 euro. TheFund may borrow from members if funding isinsufficient in proportion to their coveredliabilities. -permanent fund

Not risk based – fixed 0.05% charge and a variablepremium that can range up to 0.25% dependingupon need for funds

Privately administered by member banks according torules set by Min. of Fin and supervised by FSA. TheFund shall be administered by a Delegation elected bythe member deposit banks and branches of foreign creditinstitutions and by a Board of Directors elected by theDelegation. At least one of the directors shall representthe branches of the foreign credit institutions that aremembers of the fund.

France Ex post assessments as needed. Fonds deGarantie des Depots can borrow funds frommembers and/or call for additional fundsdetermined by a ruling of the Comite de lareglementation bancaire et financiere (FrenchBanking and Finances Committee)-nopermanent fund

Not risk based – ex post levy – on demand butlimited. Contribution may not be less than D 2,000for a half-yearly contribution and D 4,000 for thesubscription of certificates of association.

Private

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Germany Private funding. There is no publicfunding. Bundesbank may not by lawbe lender of last resort for the depositinsurance schemes. One time paymentof 0.09% -permanent funds.

Not risk based (but hybrid) – mixture of ex-ante and ex-postpremiums. Base rate of 0.03% but may range from 0.0 to 0.06%of covered liabilities basis. There can also be an extraordinarypremium of up to 100% of a regular premium in case the fundsare not sufficient. Banks that have paid for more than 20 yearsand are classified in the lowest risk category (A) can be exemptedfrom premium payment. Banks that are classified as higher risks(B or C), are required to pay an additional premium of up to250% of the regular premium.

The scheme is managed by a commission of 10bank representatives that are accountable to thegeneral assembly of the Association. All groups ofcommercial banks are represented in thecommission.’

Greece 3,000 million GDR with 60% providedby Bank of Greece and 40% providedby Hellenic Banks’Association-permanent fund

Not risk based – annual premiums are graduated (decreasing) assize of deposits increases from 1.25% for smallest size class upto 0.025% for largest size class

Administered jointly between Bank of Greece,Hellenic Bank Association and Ministry of Financeby 7-member board chaired by one of the DeputyGovernors of the Bank of Greece. The other sixmembers shall be selected from the Bank of Greece(2), the Ministry of National Economy (1), and theHellenic Banks’ Association (3).

Ireland Private funding-permanent fund Not risk based – annual premiums of 0.20% of covered deposits Public, by Central Bank & Financial ServicesAuthority of Ireland

Italy Government/private funding—Bank ofItaly can make low-interest loans tofacilitate payout of large bank-nopermanent fund

Risk based (levied ex post) – Premiums base on sliding scale ofprotected deposits with marginal premiums increasing as sizeincreases from 0.4% to 0.8%

Private, but decisions must be approved by CentralBank

Luxembourg Private funding-no permanent fund Not risk based – ex post premiums PrivateNetherlands Government/private funding—with

government providing interest freebridge financing-no permanent fund

Not risk based – ex post premiums levied as needed, up to a maxof 5% of proportion of bank’s deposits to total protected depositsin scheme

Jointly managed by central bank and bankingsector trade organizations

Portugal Government/privatefunding-permanent fund

Risk-based, 0.1% to 0.2% + more in emergencies. The annualcontributions are defined according to the monthly average of thedeposits made in the previous year and to the fixed contributionrate, weighted by the solvency ratio of each institution (the lowerthis ratio, the higher the contribution). The payment of the annualcontributions may be partly (up to a limit of 75 percent) replacedby an irrevocable contract, guaranteed where necessary bysecurities having a low credit risk and high liquidity. If theresources are insufficient to comply with its commitments, theDeposit Guarantee Fund may ask for special contributions orresort to loans

Public

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Spain Government/private funding – Central bankcan make loans to fund – permanent fund

Not risk based – 0.6% for CBs, 0.4% for SBs and1% for credit cooperatives. Extraordinarycontributions may be required and made by theCentral Bank when they are authorized by Law

Joint private/official – Board comprised of 4 membersfrom Bank of Spain and 4 from member institutions

Sweden Government/private funding-permanent fund Risk-based, 0.5% now, 0.1% later (future date is notavailable)

Joint private– public Board comprised of 4 membersfrom Bank of Spain and 4 from member institutions

United Kingdom Private funding-no permanent fund Not risk based – fees determined on basis ofprojections of next year’s losses-for banks fees arelimited to .3% of protected deposits each year

Government legislated and privately administered.Board appointed by FSA

New membersBulgaria Government sponsored independent fund Not risk based – 1% of capital but no less than

100,000 lev as entry fee and 0.5% per year onprevious year’s deposit base calculated on dailyaverage basis

Public institution but joint public/private administeredby a 5 member Management Board comprised of theChairman, appointed by the council of Ministers; theDeputy Chairperson appointed by the Bulgarian NationalBank Governing Council; one member appointed by arepresentative organization of commercial banks; andtwo members appointed jointly by the Chairperson andthe Deputy Chairperson of the Management Board.

Cyprus Private funding—permanent fund Not risk based – levies determined by the fund afterinitial contribution is made

Joint private/official by Central Bank and ManagementCommittee. The Committee shall consist of fivemembers, the chairman, the vice-chairman and threeother members. Chairman and vice-chairman shall beex-officio the governor of the Central Bank and the headof the Banking Supervision and Regulation Division ofthe Central Bank, respectively. The three other membersof the Committee appointed by the governor of theCentral Bank and shall be two representatives of thebanks nominated by the Association of CommercialBanks and one representative of the Minister of Financenominated by the Minister of Finance.

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Czech Republic Government/privatefunding—Government provides 50%of funds for compensation ofdepositors. Central Bank andGovernment will provide loans tocover short fall. In case the Fund’sreserves are not sufficient to disbursecompensation, the Fund has to acquireany and all funds on the market. Thereis no government guarantee for itsborrowing-permanent fund

Not risk based – 0.1% of insured depositsincluding accrued interest and 0.05% for buildingand savings banks

Public. The Fund is an independent institution managedby a five-member Board of Administration. Thepresident, vice president and the other members of theBoard are appointed and removed by the FinanceMinister. At least one member of the Board is appointedfrom among employees of the Czech National Bank andat least two members are appointed from among membersof the boards of directors of banks. The Board is thestatutory body of the Fund and manages its activities.

Estonia Government/private funding –Government provided initial fundingand banks paid EEK 50,000. Fund canborrow with out Government guaranteeand can ask Government to borrowlimited amt on its behalf. Initialcontribution for Deposit GuaranteeSectoral Fund – 50000kroons-permanent fund

Not risk based – quarterly contributions forDeposit Guarantee Sectoral Fund – 0.07 percent ofguaranteed deposits for Investor ProtectionSectoral Fund

Joint Private/Official-The supervisory board shall consistof eight members appointed as follows: two membersappointed by the Riigikogu; one member appointed bythe Government of the Republic on the proposal of theMinister of Finance; one member appointed by thePresident of the Bank of Estonia; one member appointedby the Financial Supervision Authority; one memberappointed by the organizations representing creditinstitutions; one member appointed by the organizationsrepresenting investment institutions; one memberappointed by the organizations representing pensionmanagement companies.

Hungary Government/private funding, – one-offadmission fee on entry (0.5% of themember ’s registered capital) –permanent fund

Not risk based – 0.5% of deposits up to 1 mil.HUF, 0.3% between 1 and 6 mil HUF, and 0.05above 6 mil. HUF

Board of Directors consists of Central Bank president,administrative secretary of Ministry of Finance, presidentof inspections, two delegates from insured institutionsand managing director of DIF

Latvia Government/private funding withinitial contribution of 50,000 lats. Iffunds are insufficient, then paymentswill be made by Government

Not risk based – 0.2% of deposits Public

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Malta Private funding–permanent fund Not risk based – ex post assessments, administrativefees and income from investments

Joint Private Official. Management Committee which isappointed by the MFSA. This Committee is made up ofpersons representing MFSA, the Central Bank of Malta,investment services intermediaries, the banks andcustomers.

Poland Permanent fund-joint Government privatefunding

Not risk based – fees determined yearly and leviedon deposits and off-balance sheet liabilitiesseparately.

Joint private/official. Fund Council and FundManagement Board. The Fund Council consists of achairman and ten members having appropriate universitydegrees and professional experience. The FundManagement Board shall consist of five members,including the President and his deputy. The ManagementBoard is appointed by the Fund Council from amongpersons having the appropriate university degree and fiveyears of service in the banking industry.

Lithuania Funded by banks and by Government Not risk based. Commercial banks and branches(departments) of foreign banks pay the InsuranceCompany insurance premiums, annually amountingto 0.45 percent of all insurable deposits

Public – The Council is comprised of 6 members,appointed by the Government of the Republic ofLithuania. The Ministry of Finance proposes 3candidates, the Bank of Lithuania – 2 candidates, theSecurities Commission – 1 candidate.

Romania Permanent fund, funded by premiums levied onbanks

Entry fee of 0.1% of statutory capital of bank;annual premium of 0.5% (.8% 2001–2004 and willfall to 0.3% in 2007) of total household deposits,and a special premium of 1.6% of total householddeposits for banks conducting high risk business

Fund managed by a 7 member board comprised of threemembers appointed by the National Bank of Romania,one of which is the prime vice-governor or vice-governorof the National Bank of Romania who is appointedex-officio as president of the Fund’s Board; two membersappointed by the Romanian Bankers Association; onemember appointed by the Ministry of Public Finance;and one member appointed by the Ministry of Justice.

Slovak Republic Government/private-permanent fund Not risk based – and range from 0.1% to 0.3% forbanks

Joint Private Official

Slovenia Private funding-no permanent fund Not risk based – fee calculate on the basis of eachbank’s share of guaranteed deposits

Public, Bank of Slovenia


Table 6Deposit insurance provisions and characteristics

Country name Top-up permitted Co-insurance % Co-insurancepercentage

Old membersAustria Yes – both EU and institutions from non-EU countries

may join and obtain supplemental insuranceCo-insurance 10%

Belgium Yes – EU member chartered institutions may join andobtain supplemental insurance

Co-insurance 10%

Denmark Yes – EU member chartered institutions may join andobtain supplemental insurance

No co-insurance 0

Finland Yes – EU member chartered institutions may join andobtain supplemental insurance

No co-insurance 0

France Yes – EU member chartered institutions may join andobtain supplemental insurance

No co-insurance 0

Germany Branches of foreign banks have several insuranceoptions which may be as high as 1.5 million euros

Co-insurance 10%

Greece Yes – EU member chartered institutions may join andobtain supplemental insurance

No co-insurance 0

Ireland Co-insurance 10%Italy Yes – EU member chartered institutions may join and

obtain supplemental insuranceNo co-insurance 0

Luxembourg Yes – EU member chartered institutions may join andobtain supplemental insurance

No co-insurance 0

Netherlands Yes – EU member chartered institutions may join andobtain supplemental insurance

No co-insurance for first20,000 euros and 90% forsecond 20,000 euros

10%

Portugal No No co-insurance 0Spain Top-up is permitted No co-insurance 0Sweden Yes – EU member chartered institutions may join and

obtain supplemental insuranceNo co-insurance 0

United Kingdom Top-up is permitted No co-insurance for first£2,000 on deposit and90 per cent co-insuranceon the next £35,000

10%

New membersBulgaria Top-up is permitted No co-insurance 0Cyprus No Co-insurance 10%Czech Republic Yes – EU member chartered institutions may join and

obtain supplemental insuranceCo-insurance 10%

Estonia Yes to extent not covered by home country guaranteesystem in EU area

Co-insurance 10%

Hungary Yes – EU member chartered institutions may join andobtain supplemental insurance

Co-insurance 10%

Lithuania Yes – EU member chartered institutions may join andobtain supplemental insurance

Co-insurance 10%

Latvia Top-up is mandatory but only for difference betweeninsurance provided by home country

No co-insurance 0

Malta Effectively yes since all foreign branches are required toparticipate regardless of coverage in home country

No co-insurance 0

Romania Yes – EU member chartered institutions may join andobtain supplemental insurance

No co-insurance 0

Poland Branches of EU banks when guarantee is lower thanprovided in Poland may join fund to increase coverage

Co-insurance 10%

Slovak Republic Foreign bank can join fund if its deposits are not insuredor available insurance is less than provided by Fund

Co-insurance 10%

Slovenia Participation is required unless home country hasequivalent scheme

No co-insurance 0

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Table 7EU insolvency resolution

Country name Closure decision controlled by Claim notification and verification Authority controlling resolution Legal payment requirements for insureddeposits

Old membersAustria Financial Market Authority NC Financial Market Authority and bankruptcy

courtWithin 3 months

Belgium Bankruptcy Court Notice is published in theMoniteur belge

Claimants have two months to file claim, Bankruptcy court 2 months

Denmark Closure is by the Danish Financial SupervisoryAuthority (DFSA)

Must request another institution to file claim.Depositors of failed bank will be notifiedwithin one month of failure,

The Danish Financial Supervisory Authority(DFSA)

Shall be effected as soon as possible and notlater than 3 months after the commencement ofthe suspension of payments or compulsorywinding-up.

Finland FSA declares that the bank had failed to meetits obligations. The FSA has 21 days to makethis decision

The fund will notify depositors and alsopublish notice of its decision to pay outfunds.

Courts and/or FSA 3 months – failure to receive payment withinthe required time limit gives the depositor aclaim against the fund in court.

France Commission Bancaire’s notice prior to court’sdeclaration

Customers notified by fund and have 15 daysto respond.

Resolution overseen by banking supervisor 3 months with the possibility for theSupervisory Commission to extend by 3months again.

Germany Petition filed by Financial SupervisoryAuthority to court

Creditors are notified by Germancompensation scheme within 21 days ofnotification of insolvency and claims must befiled in writing by creditors with the Germancompensation scheme within one year.

Financial Supervisory Authority Payments must be made within 3 months.

Greece Bank of Greece and court determine, 21 daysafter an institution has failed to make paymenton contractual obligations, then failure willhave occurred

Notification will take place in the press Bank of Greece and court HDGF pays compensation in respect ofunavailable deposits within three months of thedate when the deposits became unavailable.This time limit may be extended by no morethan two further 3-month periods.

Ireland Determination by either the Irish Central Bankand Financial Services Regulatory Authority ora court ruling

Claims must be filed by depositors General Insolvency Laws and courts 3 months

Italy The Courts have the legal power to declare theinsolvency status. However, the Bank of Italy,independently from the Courts’ declaration,can propose to the Minister of the Economyand Finance the compulsory administrativeliquidation of a bank in each of the followingcases: exceptionally serious violations ofprudential requirements, exceptionally seriousirregularities in the bank’s administration,exceptionally serious financial losses

FITD subrogates to the right of depositorsand carries out pay-offs directly.

The 1993 Banking Law Bank of Italyappoints liquidator

The reimbursement of depositors shall be made,up to the equivalent of 20,000 euros withinthree months of the compulsory liquidationorder. The Bank of Italy may extend this termin exceptional circumstances or special cases,for a total period not to exceed nine months

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Luxembourg Petition filed by bank regulator-Commission deSurveillance du Secteur Financier (CSSF)-orinstitution itself to the court

Claims must be made by depositors theAGDL and declaration to be made throughthe liquidators of the establishment.

Law on the Financial Sector of April, 1993Court will appoint a bankruptcy judge whowill appoint a liquidator

Reimbursement starts as soon as claims havebeen verified and must be finished 3 monthsafter the occurrence of lack of availability offunds. The Luxembourg supervision authoritymay grant 3 extensions of 3 months each of thisdeadline.

Netherlands Nederlandsche Bank, which is the supervisor,must petition the court

De Nederlandsche Bank can declareinsolvency and advertises in the newspapersfor depositors to apply for compensation.Victims of the bank failure can then registerwith De Nederlandsche Bank during a periodof five months

Act of the Supervision of the credit system1992, Bankruptcy Act

As soon as possible but in any case no laterthan three months of the date on which thecreditor or investor duly submitted his claims,recompense that creditor or investor for theamount of the claims covered by the scheme. Invery exceptional circumstances, decide that theperiod of three months shall be extended by amaximum of another three months.

Portugal The Banco de Portugal, as the bankingsupervisory authority, Management is requiredto notify the Banco de Portugal of the bank’sinability to meet its obligations, but Banco dePortugal may also intervene

Banco de Portugal may force a winding uppursuant to Credit Institutions and FinancialCompanies: Legal Framework (approved byDecree-Law No. 298/92 of 31 December andamended by Decree-Laws No. 246/95 of 14September, No. 232/96 of 5 December, No.222/99 of 22 June, No. 250/2000 of 13October, No. 285/2001 of 3 November, No.201/2002 of 26 September, No. 319/2002 of28 December and No. 252/2003 of 17October).

Repayment shall take place within a maximumof three months of the date on which depositsbecame unavailable; in exceptionalcircumstances and on a case-by-case basis, theFund may apply to the Banco de Portugal for amaximum of three further extensions of thetime limit, neither of which shall exceed threemonths. Without prejudice to the period oflimitation set forth in the general law, theexpiry of the time limit prescribed in theforegoing paragraph does not affect thedepositors’ right of compensation.

Spain Bank of Spain petitions court Depositors are not required to file a claim.The insurer makes a record of the depositorswho are entitled to compensation andinforms depositors of the events throughordinary mail of their right to compensation

General insolvency laws and Discipline andIntervention Of Credit Institutions Law26/1988, of 29 July (BOE day 30)(Correction of errors, BOE of 4 August1989), Authority to impose sanctions for veryserious infractions shall rest with the Ministerof Economy and Finance, at the proposal ofthe Bank of Spain, except for revocation ofauthorization, which shall be imposed by theCouncil of Ministers.

Will start as soon as possible and shall takeplace within a maximum of three months of thedate on which deposits became unavailable; theFunds may apply to the Banco de Espana for amaximum of three further extensions of thetime limit, neither of which shall exceed threemonths.

Sweden Finansinspektionen NA Companies Act Reimbursements will start as soon as possible.They have to be done no later than 3 monthsafter the institution is declared bankrupt.

United Kingdom Bank files with court If a bank or building society that becomesinsolvent depositor will be contacted by theliquidator or by Financial ServicesCompensation Scheme and file a claim form

Insolvency Act 1986, Banking Act 1987 All claims should be paid within 3 months (canbe extended by a further 3 months or by actionsof the court)

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Country name Closure decision controlled by Claim notification and verification Authority controlling resolution Legal payment requirements for insured deposits

New membersBulgaria Bulgarian Central Bank must declare

a bank insolvent, revoke its license,petition the bankruptcy court andnotify the Deposit Insurance Fund tobe prepared to designate an assigneeto handle the resolution

Creditors shall assert their claims in writingbefore the assignee in bankruptcy within a periodof two months after publication of the decision.Assignee in bankruptcy shall announce in theDarjaven Vestnik and publish at least twice in oneor more central daily newspapers a notice of theplace, where the list shall be made available forinspection within a 14-day period afterpublication of the announcement

Law on Bank Bankruptcy. The district courtin the state where the bank is headquarteredhas 10 days to review the Central Bank’spetition The judgment shall be entered in therelevant court register and published in theDarjaven Vestnik no later than the nextbusiness day.

Within 15 days from the receipt of the informationand documentation from assignee, the Fund’sManagement Board shall publish in at least twomajor dailies information about the date after whichdepositors shall be paid from the Fund, and thename of the bank which will effect these payments.Payments from the Fund shall begin no later than 45days from the date of the resolution of the BulgarianNational Bank.

Cyprus Bank Supervision Dept., Central Bankof Cyprus or a court order determinesif bank unable to repay deposits

Deposit Protection Scheme will collectinformation on depositors eligible for claims.

Banking Law specifies that upon declarationby a court or revocation of the bankinglicense by the Central Bank constitutesgrounds for its winding up by the Court onthe application of, the Central Bank and theappointment of a receiver.

Publish an announcement in the Official GazetteThe Fund’s Management Committee must proceedwith the compensation payment within three monthsfrom the date deposits became unavailable, unlessthe Central Bank of Cyprus approves an extension inaccordance with the provisions of the Regulations.

Czech Republic Banking Supervision of CNB canimpose conservatorship. Bankmanagement responsible for notifyingCNB of impending insolvency

Compensation for an insured deposit claim shallbe paid from the Fund to an eligible person afterthe Fund receives notification in writing from theCzech National Bank

General bankruptcy statutes and Act No.21/1992 Coll. of 20 December 1991, onBanks as amended

Reimbursement starts within 3 months after depositsbecome unavailable (may be prolonged twice by 3months), ends within 5 year

If a bank is wound up and liquidated, theCzech National Bank shall have exclusiveauthority to submit a proposal for thenomination of the liquidator. In addition, theCzech National Bank shall have exclusiveauthority to submit a proposal for thedismissal of the liquidator and for thenomination of a new liquidator or a proposalfor the winding up of the joint-stock companyif the bank’s license has been revoked. Thecourt shall rule on the Czech National Bank’sproposal the within 24 h of the proposal beingsubmitted.

s

Estonia Banking Supervision Department ofEstonia Central Bank can withdraw abanking license

Within three working days after the date on whichdeposits become unavailable, the Fund shallpublish a notice in at least two daily nationalnewspapers on at least two occasions setting outthe name of the bank, the term and procedure forpayment and a list of the documents requiredupon the payment of compensation.

Bankruptcy Act, Act on Credit Institutions –A bank may be wound up by the central bank(Eesti Pank) or on the basis of a court orderthe Bankruptcy Law. When legal insolvencyis declared, the Liquidation Board or trusteein bankruptcy takes over.

Payment must begin not later than thirty days afterthe date on which deposits become unavailable andcompleted within three months The Fund mayextend the term by up to three months at a time, butnot for more than a total of nine months.

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Country name Closure decision controlled by Claim notification and verification Authority controlling resolution Legal payment requirements for insured deposits

Malta Malta Financial Services Authority According to rules established by MFSA Receiver appointed by bankruptcy court and aliquidator

Within 3 months

Latvia Insolvency petition to BankruptcyCourt or to the Finance and CapitalMarket Commission or by thatCommission

Guaranteed compensation after theoccurrence of a case of unavailability ofdeposits have submitted their claims to theliquidator or administrator or Commission

Liquidator appointed under the Credit InstitutionsLaw under the control of the Finance and CapitalMarket Commission

Payment within 3 months with up to 3 extensions of3 months each

Romania The judicial reorganization andwinding-up proceedings shallcommence by the submission to theCourt of a petition by the debtorcredit institution, or its creditors or bythe National Bank of Romania. Theinstitution has 15 days to appeal

The competent Court shall take immediatelythe necessary steps with a view to publishingan extract of the decision to open the judicialreorganization and winding-up proceedingsin the Official Journal of the EuropeanCommunities and in two nationalnewspapers of each host EU member State.Any creditor of a debtor credit institution hasthe right to lodge claims or to submit writtenobservations relating to their claims againstthe credit institution, which shall be reportedto the liquidator.

Administrator appointed by the Central Bank andLiquidator appointed by the court. The DepositGuarantee Fund is the official receiver for failedbanks.

The compensation is paid by the Fund within 3months from issuing the court order forcommencement of bankruptcy proceedings, but notlater than 3 years from beginning of compensationpayments.

Slovak Republic National Bank of Slovakia filespetition

Failed bank or conservator must announce inmedia and publicize inside the bank

Conservator Within 5 days after deposits are inaccessible(frozen, become unavailable) the DPF decides astart of reimbursement; reimbursement ends within3 months (may be prolonged twice by 3 months),special cases may be reimbursed within 3 years

Slovenia Bank of Slovinia If bank or savings bank is declared bankruptguaranteed deposits will be repaid by a bankdesignated by the Bank of Slovenia to act assuccessor. This bank will provide the fundsnecessary for repaying guaranteed deposits.

Bankruptcy court appoints trustee recommendedby Bank of Slovinia

Liability for guaranteed deposits will be assumed byBank of Slovinia Payment must be made within 3months.

Hungary Hungarian Financial SupervisoryAuthority

Claim filed by customer. Bank and fund areobliged to inform depositors through dailypress and announcements which provideinformation on where indemnity claims canbe submitted and when the payments start.

The consent of the Minister of Finance and of thePresident of the NBH is required for the HFSA towithdraw a credit institution’s operating license.(CIFE Section 30 (4)) When it withdraws alicense, the HFSA shall make a resolution forwinding up the credit institution or initiateliquidation. The HFSA shall initiate theliquidation of the credit institution if the operatinglicense is withdrawn because the credit institutionails to pay any of its undisputed debts within fivedays of the date on which they are due or nolonger possesses sufficient own funds (assets) forsatisfying the known claims of creditors. In anyother case, an order for the winding up of theinstitution may be issued.

Payments must start within 15 days after depositswere frozen or after the bank’s operational licensewas withdrawn, or after the bank’s liquidation wasannounced, and complete the proceedings withinthree months. Two 3-month extensions arepermitted.

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The special rules laid down in Section 176/A– 185/H of the CIFE are applicable to thewinding up and liquidation of creditinstitution, in addition to the rules of theBankruptcy Act and the Companies Act. As ageneral rule, the winding up and liquidationproceeding of financial institutions may beconducted only by the HFSA’s nonprofitcompany.

Poland Commission on Supervision which is part of thePolish National Bank files a petition with thebankruptcy court. Petition must be consideredby the court within on month of receipt

Payouts are made on the basis of a list ofdepositors of the bank, for which bankruptcyhas been declared by a court. A list ofdepositors is drafted by the trustee inbankruptcy within 30 days from the date ofannouncing bankruptcy and is presented tothe Fund Management Board. After checkingthe list of depositors, within 7 days the FundManagement Board assumes and issues tothe public information for a writtennationwide announcement, as well asinforms the entities covered by the guaranteesystem of the resolution on transferring tothe trustee in bankruptcy the sum ofguaranteed funds which is to be paid out

Receiver appointed by bankruptcy court The trustee in bankruptcy executes payment ofthe guaranteed funds according to the scheduleaccepted by the Fund Management Board, butnot later than 30 days from receiving the sumsfrom the Fund for payment for the guaranteeddeposits.

Lithuania The Central Bank of Lithuania as bankingsupervisor is empowered to close a bank

The Council of the Insurance Companyannounces the procedure for payinginsurance compensations in the ValstybesZinios. The Co. announces the place andtime of paying insurance claims in at least 2Lithuanian daily newspapers. To get paid, adepositor must submit a personalidentification document.

Administrator appointed by the Central Bankof Lithuania is empowered to initiatebankruptcy proceedings which are in turnadministered by a court appointed receiver.

Payment must be made within 3 months afterfunds are unavailable or bankruptcy declared.May be extended 3 months twice by theCouncil of the Insurance Company.

NC: not clear; NA: not available.


Table 8Possible deposit insurance systems differences in different countries

• Account coverage• Maximum amount• Type of account, e.g., inter-bank• Foreign currency deposits• Coinsurance• Netting

• Ownership• Private vs. public (government)

• Funding (premiums)• Ex-ante vs. ex-post• Magnitude• Risk-based vs. flat• Regular vs. “topping-up”

• Reserve fund• Minimum magnitude• Voluntary or required

• Government support• Explicit (official) vs. implicit• Credibility of private funding (premiums)

• Speed of payment if insolvency• Insured depositors – to par value• Uninsured depositors – to market (recovery) value• Advance dividends vs. as assets sold

• Claim filed• Automatically• By claimant

• Pre-insolvency intervention• Prompt correction action (PCA)

• Declaration of insolvency• Private creditors or government agency• Insurance agency vs. other• Closure rule vs. discretion (forbearance)

• Insolvency resolution• Administered by insurance agency, other agencies, or bankruptcy court• Least cost resolution (LCR)• Insurer serves as receiver/conservator• Too big to fail

• Membership• Mandatory or voluntary

• Other• Coinsurance• Offsetting


A number of questions arise concerning cross-border insolvencies. First, because both thetiming of the official declaration of insolvency and the process by which an insolvency is resolvedhave important effects on the host country of a branch or subsidiary, should the host country sharein the prudential regulation with the home country and, if so, in what way? In the EU, the homecountry is responsible for a foreign branch but the host country is responsible for any subsidiarieschartered therein.

Second, how far can and does inter-country regulatory cooperation go? Inter-country coopera-tion tends to operate best when things are going well but deteriorates rapidly as conditions in thecountries involved deteriorate and generate conflicts arising from an incentive for a home countryregulator to give preference to its own citizens even at the expense of host country residents orother host country citizens.

Third, does it matter whether the absolute or relative size of the branches or subsidiary aremuch larger in the host country than in the home country? Would home countries be more or lesslikely to declare a bank insolvent sooner or later given that this decision may impact the homeand host countries differently? Would host countries permit home countries, whose branch bankscomprise a large percentage of the banking assets in that country, to be the final determiner of theinsolvency decision or “pull the plug” on their banks in the host countries when the host countryhas to suffer any excess damage from either overly hasty or overly slow action?

In the EU, systemic risk resolution is the responsibility of the local supervisory agencies andcentral banks. However, in the case of use of the lender of last resort function, large transactionsmust be approved by the Governing Council of the European Central Bank. The specifics, however,of the home country treatment of banks whose failure might present systemically importantimplications for a host country are not explicitly addressed in EU directives. Furthermore, littleattention has been paid to how the responsible agencies decide whether a problem is a limitedmicro or broader systemic risk problem, although the EU’s Council of Economic and FinancialAffairs, has recently promulgated a structure for coordination of financial stability efforts forbanking supervisors and central banks within the EU.36,37 Indeed, it is for this very reason, thatNordic countries have structured their own arrangements specifically designed to deal with Nordeabank, should it experience financial difficulties.

Fourth, should countries be able to impose depositor preferences in favor of deposits at theirown home offices relative to deposits at foreign host offices, as the United States and Australiado? In Europe, EU directives specifically require that EU deposits and claims be treated equallyin the event of a bank failure regardless of location of the office within the EU.

Finally, because accounting rules are also likely to differ among countries, the timing of whenaccounting insolvency occurs is likely to vary across different countries. Solvency in one countrymay be recorded as insolvency in another and vice-versa. This alone, even if the regulators indifferent countries move to resolve official insolvencies at the same speed, will result in differenttiming of resolutions. Accounting for profitability is also likely to differ among countries. This islikely to result in the transfer of activities within a banking organization and across subsidiariesto countries where the activity receives the most favorable accounting treatment (Cardenas et al.,2003). To the extent that such shifts may not only interfere with the efficient allocation of resourcesin the host country branches, but also may adversely affect the financial condition of subsidiaries

36 Banking supervisors have also embarked upon a series of crisis simulations to identify issues and problems that mayarise.37 Nieto and Penalosa (2004) describe the proposed structure in great detail and discuss recent efforts to deal with the

problems of coordination. See Kane (2003) for a discussion of how schemes should be structured.


in particular countries, they are of concern to the prudential regulators in those countries. Someanalysts have argued that requiring foreign bank subsidiaries to have both some equity outstandingfor public trading and minority (independent) directors may lessen the likelihood of shifts thatimpact the host country adversely, in addition to providing additional signals about significantchanges in the financial health of the subsidiary or organization as a whole. Despite these concerns,the fact that all EU firms must abide by the International Financial Reporting Standards shouldserve to at least constrain countries from applying different valuation procedures to some degree.

The effectiveness of home country prudential regulation of its foreign branches and subsidiariesin other countries depends on a number of factors, including the strength and credibility of thehome country’s deposit insurance scheme, the quality of supervision, and the relative and absolutesizes of the banks in each country.38 Host countries logically would prefer home country prudentialregulation of foreign branches particularly when the home country deposit insurance scheme isstrong and host country branches are large. Home country regulation is least satisfactory to hostcountries when its deposit insurance scheme is weak and branches in the host country large.

As earlier noted, for subsidiary banks in financial difficulties, host country regulators need tobe concerned whether the parent will or will not rescue the sub, and for solvent subsidiary banks oftroubled foreign parents, whether or not the parent will attempt to strip assets from the sub, whetherthe sub’s solvency is threatened through reputation risk from the parent’s insolvency or whetherthe parent could continue to supply important services.39 The severity of the agency problemsis dependent on a number of factors including the absolute and relative sizes of the parent andsubsidiary and the countries involved. Some host countries require capital maintenance agreementsbetween the parent and it foreign subsidiary banks’ regulators requiring parental support if thesub gets into financial trouble. But enforcement of such provisions across borders can be difficult.The greatest chance of parents walking away from insolvent subsidiaries is when the parent issmall and solvent and the sub is insolvent regardless of size. The least chance is when the parentis large and solvent and the sub is insolvent, again regardless of size. Size matters most when theparent is solvent. Small parents are less likely to rescue insolvent foreign subs of any size.

Numerous practical issues arise if a large cross-border institution should experience financialdifficulties and have to be legally closed and resolved. Cross-border coordination and decision-making would be extremely difficult, especially in the absence of explicit ex ante plans.40 Consideran extreme case in which a cross-border institution operated both branches and separately char-tered subsidiaries in each of the other 26 EU countries. In this case there would be as manyas 27 home country regulators (one for the parent institution and each of the separately char-tered subsidiaries), 27 different deposit insurance funds (with primary responsibility for the homechartered subsidiaries but with overlapping responsibilities for branches in each host country andforeign branches in their own country to the extent that the institution might have chosen to top-upits coverage), and 27 separate central banks possibly involved if emergency liquidity had to beprovided to keep the institution operating while claims against it were resolved. In the extreme,there could be as many as 81 separate entities that would have a role in some part of the resolutionof this institution.41

38 See Mayes (2004) and Eisenbeis (2004).39 A similar matrix is developed in Goodhart (2005). A more detailed analysis of the decision to expand cross-border

through branches or subsidiaries appears in Dermine (2006) and Eisenbeis and Kaufman (2005).40 The European Commission is engaged in a review of its Deposit Insurance Directive 94/19 and surveys are still being

conduced to provide an up to data compendium of the exact provisions of each country’s scheme.41 This does not consider regulators from outside the EU that may also be involved for the very largest EU institutions.


With different deposit insurance coverage, sorting out who would be responsible for whatclaims would be a daunting task, especially when it comes to the top-up coverage claims forcross-border branches. In addition, because of different laws governing claims in bankruptcyacross the different countries, there would be the added complication that depositors’ claimsmight be treated differently if held in a branch than a subsidiary. Imagine the difficulty for adepositor especially a corporate customer, who might have multiple accounts across countries,in choosing an account in his/her own country among say branches of banks headquartered in26 other countries with different insurance and resolution systems. Any claims might be settleddifferently depending upon which bank the account was held. There is even the risk that one ormore country deposit insurance funds might default or might not be able or unwilling to meetits obligations, particularly when many of the deposits of the insolvent bank are at branchesin host countries. While this may, in good times, be viewed by the responsible authorities asan unlikely event, there is ample evidence that commitments are not always kept in bad times.For this reason, Goodhart and Schoenmaker (2006) argue for the establishment of explicit exante commitments to share the burden among countries in which a bank is located should lossesoccur.

6. Possible solutions to the deposit insurance problems and difficulties in resolvingproblems in foreign-owned banks

It is now well understood that poorly designed deposit insurance, safety nets and regula-tory structures encourage both moral hazard behavior by banks and poor performance by bankregulators in resolving troubled banks can lead to excess forbearance on problem institutions.The result is to increase both the likelihood of occurrence and the costs of a banking crisis. Todate, EU regulators appear to have made little progress dealing with the supervisory and failureresolution issues raised by cross-border banking organizations.42 The principle focus has beenon obtaining cooperation and data sharing among responsible supervisory agencies within theexisting decentralized regulatory framework. Coordination and cooperation among home andhost countries are necessary, but not sufficient, conditions to solve the problem.43 Such arrange-ments are limited in enforcement effectiveness until progress is made to deal with the underlyingstructural defects in the failure resolution process. There is little uniformity in the underlyinglegal structure for resolving bank failures. As noted earlier, in the EU, failure resolution is gen-erally covered under general bankruptcy laws, not by bank-specific rules designed to reducethe negative externalities associated with banking failures.44 Only a few countries give bankregulators legal closure authority or the right to intervene when an institution gets into finan-cial difficulty. For these reasons, we are skeptical that voluntary cooperative arrangements willwork when put to the test in a crisis, especially if substantial commitment of a country’s trea-sury funds should prove necessary to either pay out depositors or to rescue the institution inother countries. What is needed is first to recognize that the EU should seek a system that effi-

42 Among the proposals to resolve this problem include the “college of prudential supervisors” of Mayes et al. (2007),the lead supervisor approach of the European Financial Services Round Table (2004), and a new European banking charterin Cihak and Decressin (2007).43 This issue has also been addressed by Denmark’s Nationalbank (2005).44 This is in stark contract to the U.S., for example, where there is a separate bankruptcy and administrative process for

banking mergers administered by the FDIC. See Wall and Eisenbeis (2002).


ciently resolves troubled institutions with minimal externalities to either banking customers ortaxpayers.

Banks become economically insolvent when the market value of their assets declines belowthe value of their deposits and other debt funding so that the value of their capital turns negative.At this point, a bank cannot pay out all its debts, including deposits in full and on time, and thedepositors and other creditors share in the losses according to their legal priority. These claimantsmay experience both credit and liquidity losses in the resolution process. Credit losses may occurwhen the recovery value of the bank as a whole or in parts falls short of the par value of itsdeposits or other debt on their respective due dates. Liquidity losses may occur in two forms.First, depositors may not have immediate (next business day or so) and full access to the parvalue of their insured claims or to the estimated recovery value of their de jure uninsured claims.Second, qualified performing borrowers may not be able to utilize their existing credit linesimmediately.

To reduce liquidity losses in the case of insured deposits, the insurer must have a fund toprovide eligible depositors with immediate and full access before the insurer may collect thefull proceeds from the sale of the bank or its underlying assets and, in case of losses, to fillthe difference between the par value and the recovery value. In the case of uninsured claims,liquidity can be provided either by a similar direct injection of funds by the insurer but only upto the estimated recovery value or thought a liquid and active secondary market for receivershipcertificates given to uninsured claimants by the insurance agency, Insolvent banks may be saidto be resolved efficiently with least cost to society when the sum of aggregate credit losses andaggregate liquidity losses, or total losses, are at or close to zero.

Efficient resolution of insolvent banks can be achieved if a four-step program embodied instructured intervention and early resolution (SEIR) is introduced with the following features: (1)an insolvent institution should be legally closed when its equity capital to asset ratio declines to apre-specified and well publicized positive minimum; (2) once closed, recovery values should beestimated quickly and credit losses (“haircuts”), which may occur if the bank is not legallyclosed in time, assigned to de jure uninsured bank claimants; closed institutions should bereopened as soon as possible (e.g., next workday) so as to provide full depositor access to theiraccounts on their due dates at their insured or estimated recovery values and full performingborrower access to their pre-established credit lines (For large banks that cannot be sold quickly,these activities may have to be transferred to a newly chartered government operated tempo-rary bridge bank); and finally, the institution should be re-privatization with adequate capita sothat it does not fall into insolvency again quickly. Under such a system both credit and liq-uidity losses that generate the widespread fear of bank failures are minimized and the adversemoral hazard incentives inherent in deposit insurance become benign. Indeed, adoption of thesefour principles and the necessary infrastructure to make them work would largely eliminatemost of the agency problems, negative externalities, insurance fund losses, and coordinationproblems associated with the current EU system that has been identified here and by othersas well.45

We believe that adoption by the EU of the above four-step structure would reduce the probabilityof banking failures. Such a program would require the EU to abandon its present approach, whichis simply to bail troubled institutions out rather than to permit them to fail. Instead, the proposal

45 Eisenbeis and Kaufman, 2006 contains a more detailed exposition of this proposal. These are similar to those in Mayes(2005), Harrison (2005), Kaufman (2004, 2007) and Mayes et al. (2001).


relies on the use of PCA to turn troubled banks around before failure and to limit the cost of failurethrough efficient resolution of the banks that proved incapable of turning themselves around beforetheir capital was exhausted.

This should provide an effective supplement to regulatory cooperation among EU coun-tries and reduce home-host country conflicts to the extent that bailouts and costs to taxpayerswere reduced. If there were few cross-border failures and no, or minimum, credit or liquid-ity losses when failures did occur, the cross-border regulatory problems would be minimized.Note that this program attempts to eliminate failure losses, while deposit insurance only shiftsthem from protected depositors to the insurance agency and possibly ultimately to the taxpayer.The question is how such a structure could be put in place in the EU without requiring con-forming legislation in each country, which would be difficult to enact particularly in the shortterm.

We propose that this might be able to be accomplished on a voluntary basis through putting inplace financial incentives that would encourage large cross-border banks to accept this program.The primary incentive would be lower deposit insurance premiums or other charges to inducebanks and their subsidiaries that operate cross-border branches to accept a system of prompt correc-tive action with a legal closure rule at positive capital implemented by the respective home country.

The exact implementation of the lower premiums might depend upon the structure of howinsurance charges are levied (as detailed in Table 5). In cases where an ex ante premium, risk-basedor otherwise, is charged, PCA banks could be offered a discount on their charges or alternatively,non-PCA banks could be charged a surcharge on the premiums. In cases where premiums arelevied on an ex post basis, PCA-banks would be charged less than non-PCA banks. Lower relativepremiums for PCA banks are justified because of the lower expected losses that would accrue tothe insurer under a well-run PCA structure.

The numerical value of the capital-asset trigger ratio for insolvency could be determined in acouple of ways. It could be set uniformly across the Euro-area. Alternatively, it could be determinedby the home country and would be the same for all banks chartered in the country. Competitionamong countries would prevent this ratio from being chosen inefficiently. If set too high, bankswould not choose the country for their charter. If set too low, the deposit insurer would be liablefor larger payments to other countries.

If the regulator is able to resolve an institution before its capital turns negative, there is noeconomic or financial insolvency or bankruptcy and no losses to depositors and other creditors.Only if regulators fail to catch an intuition before its capital turns negative and it becomes insolventwould it be necessary to invoke bankruptcy resolution procedures and assign losses to depositorsand other creditors. To deal with insolvent institutions efficiently, it would be useful over thelonger for the EU to require member countries to adopt a separate bankruptcy resolution code forbanks. Such a statute could be based on that applicable to banks in the United States that givesregulators the power to legally close banks and assign pro-rata losses to depositors and othercreditors (Bliss and Kaufman, 2006, 2007).

The proposal has several advantages. If the bank is successfully put into resolution before it’scapital is depleted, the home country does not impose losses on depositors in either the homeor host countries. Thus, the differences in deposit insurance schemes among countries discussedearlier decrease in importance except with respect to the size of the differential premium advan-tage that would accrue to PCA banks. The rule requiring the institution to voluntarily give upits charter may be seen as a cost imposed on the banks that would be offset by lower depositinsurance costs for going concerns. Since the shareholders, as a condition of obtaining lowerdeposit insurance premiums, ex ante have agreed to give up their charter, there are no issues


of “taking of property.”46 Furthermore, any residual value will be returned to the shareholders.This is similar to conditions any insurance company imposes of its insurees in their contracts.Indeed, shareholders, who are unwilling to recapitalize a troubled institution to bring it up toregulatory standards, indicate by their lack of action their believe that the institution as presentlyorganized and operated is no longer a going concern. Finally, there would be less incentive on thepart of regulatory authorities to engage in forbearance. Both mangers and creditors of the insti-tution would clearly understand when and under what conditions a troubled institution would beforced into resolution mode and this would tend to reinforce market discipline. Finally, regulatoryagency problems associated with overlapping jurisdictions and deposit insurance schemes wouldbe reduced, because the scope and nature of regulatory responsibilities would be clearly specifiedex ante.

7. Conclusions

The focus of this study has been on potential problems in the structure of supervisoryand deposit insurance systems in cross-border banking and the related aspects of failure res-olution and coordination when financial problems arise, with particular emphasis on the EU.The issue is of substantial current importance and deserves attention because the costs of anyresulting crisis may more than offset the well analyzed efficiency benefits of cross-border bank-ing. We have identified a number of issues and concerns about the present system design thatare likely to result in higher than necessary costs of insolvencies in cross-border banking inthe EU. To date, little progress appears to have been made in the EU in dealing with them.Indeed, as cross-boarder branches and subsidiaries increase in importance in host EU coun-tries, the resulting potential dangers of the current structure are likely to become large andmay not only reduce aggregate welfare in the affected countries substantially when foreignbanks with domestic branches or subsidiaries approach insolvency, but also threaten financialstability.

To provide a more efficient arrangement, we propose four principles to ensure the efficient res-olution of bank failures, should they occur, with minimum, if any, credit and liquidity losses.These include: prompt legal closure of institutions before they become economically insol-vent, prompt identification of claims and assignment of losses, prompt reopening of failedinstitutions and prompt recapitalizing and re-privatization of failed institutions. Implementingthese proposals would go a long way towards mitigating or possibly even eliminating many ofthe potential agency and related problems inherent in the current multiple and confusing EUcrisis resolution and deposit insurance regimes across countries. Finally, we propose a mech-anism using a financial incentive in the form of lower deposit insurance costs to put sucha scheme into place quickly in the case where a cross-border banking organization seeks totake advantage of the cross-border banking opportunities in the single banking license avail-able to banks in the EU. In return for lower premiums, the bank agrees to be subject to PCAincluding a legal closure rule at a positive capital ratio established by the EU or the homecountry.

46 It should be pointed out that giving up a charter, once the institution is no longer viable, appears a small cost relativeto the value of lower deposit insurance premiums to a going concern.


Table 9Sources of information

Country name

Old members http://www.oba.hu/index.php?m=article&aid=190,http://www.worldbank.org/research/interest/2003 bank survey,http://ec.europa.eu/civiljustice/bankruptcy/bankruptcy gen en.htm,http://www.efdi.net/participantsDetails.asp?IdParticipants=1&Category=members

Austria Hall (2001), http://www.einlagensicherung.at/;http://oenb.at/en/img/austrianbankingact tcm16-11181.pdf

Belgium http://www.fondsdeprotection.be/files/reglement dintervention en.pdfhttp://www.protectionfund.be

Denmark http://www.gii.dk/, http://www.indskydergarantifonden.dkFinland http://www.pankkiyhdistys.fi/english/index.html, http://www.talletussuojarahasto.fiFrance http://www.garantiedesdepots.fr/spip/rubrique.php3?id rubrique=16,

http://www.garantiedesdepots.frGermany Deposit Guarantee and Investor Compensation Act 1998,

http://www.bankenverband.de/pic/artikelpic/082006/0607 entschaedigung en.pdf,http://www.bdb.de,http://wdsbeta.worldbank.org/external/default/WDSContentServer/IW3P/IB/2001/03/30/000094946 01032007445638/Rendered/PDF/multi0page.pdf,

Greece http://www.hdgf.gr/binary/hdgf Law.pdf, http://www.hdgf.grIreland http://www.ifsra.ie/frame main.asp?pg=/consumer/cr cs dp.asp&nv=/consumer/cr nav.asp,

http://www.centralbank.ieItaly http://www.fitd.it/en/deposit guarantee/deposit insurance.htm, http://www.fitd.itLuxembourg http://www.agdl.lu/pdf/FAQ 0505 EN.pdf,

http://www.pwc.com/lu/eng/ins-sol/publ/pwc banking 050493 uk.pdf, http://www.agdl.luNetherlands Hall (2001),

http://www.finansbank.nl/finansbank/netherlands/english/consumer banking/savings/topinterest base account/cgs, http://www.dnb.nl;

http://www.efdi.net/scarica.asp?id=47&Types=DOCUMENTSPortugal http://www.bportugal.pt/default e.htm, http://www.bportugal.pt/publish/legisl/rgicsf2004 e.pdf,

http://www.fgd.bportugal.ptSpain http://www.fgd.es/Indexin.htm, http://www.fgd.esSweden http://www.ign.se/English/index.html, http://www.ign.seUnited Kingdom FSCS annual report 2003/2004 and International deposit insurance survey,

http://www.fscs.org.uk, http://www.fscs.org.uk/consumer/how to claim/deposits/

New members http://www.oba.hu/index.php?m=article&aid=190,http://www.worldbank.org/research/interest/2003 bank survey

Bulgaria Nenovsky and Dimitrova (2003),http://www.iadi.org/Surveys%20Partial/BDIF%20-%20Bulgaria%20SumQ2A2.pdf;http://www.dif.bg/law.php?lang=en

Cyprus http://www.centralbank.gov.cy/media/pdf/BCRGE DEPOSITPROTECTION.pdf, Establishmentof Deposit Protection Scheme Regulations of 2000, http://www.centralbank.gov.cy

Czech Republic http://www.iadi.org/html/App/SiteContent/Member%20Profile%20DIF%20Czech%20Republic.pdf, http://www.fpv.cz,http://www.cnb.cz/www.cnb.cz/en/legislation/acts/download/act on banks.pdf,http://www.fpv.cz/index00en.html

Estonia http://www.legaltext.ee/text/en/X60018K3.htm,http://www.eestipank.info/pub/en/dokumendid/dokumendid/oigusaktid/seadused/ 3.html,http://www.tf.ee

Hungary http://www.iadi.org/html/App/SiteContent/Member%20Profile%20Hungary.pdf, www.ndif.hu,http://english.pszaf.hu/engine.aspx?page=pszafen authorizationguides, http://www.ndif.hu

http://www.oba.hu/index.php%3Fm=article%26aid=190

http://www.worldbank.org/research/interest/2003_bank_survey,http%3A//ec.europa.eu/civiljustice/bankruptcy/bankruptcy_gen_en.htm

http://www.worldbank.org/research/interest/2003_bank_survey,http%3A//ec.europa.eu/civiljustice/bankruptcy/bankruptcy_gen_en.htm

http://www.efdi.net/participantsDetails.asp%3FIdParticipants=1%26Category=members

http://www.einlagensicherung.at/

http://oenb.at/en/img/austrianbankingact_tcm16-11181.pdf

http://www.fondsdeprotection.be/files/reglement_dintervention_en.pdf%20http%3A//www.protectionfund.be

http://www.gii.dk/

http://www.indskydergarantifonden.dk/

http://www.pankkiyhdistys.fi/english/index.html

http://www.talletussuojarahasto.fi/

http://www.garantiedesdepots.fr/spip/rubrique.php3%3Fid_rubrique=16

http://www.garantiedesdepots.fr/

http://www.bankenverband.de/pic/artikelpic/082006/0607_entschaedigung_en.pdf

http://www.bdb.de/

http://wdsbeta.worldbank.org/external/default/WDSContentServer/IW3P/IB/2001/03/30/000094946_01032007445638/Rendered/PDF/multi0page.pdf

http://wdsbeta.worldbank.org/external/default/WDSContentServer/IW3P/IB/2001/03/30/000094946_01032007445638/Rendered/PDF/multi0page.pdf

http://www.hdgf.gr/binary/hdgf_Law.pdf,%20http%3A//www.hdgf.gr

http://www.ifsra.ie/frame_main.asp%3Fpg=/consumer/cr_cs_dp.asp%26nv=/consumer/cr_nav.asp

http://www.centralbank.ie/

http://www.fitd.it/en/deposit_guarantee/deposit_insurance.htm

http://www.fitd.it/

http://www.agdl.lu/pdf/FAQ_0505_EN.pdf

http://www.pwc.com/lu/eng/ins-sol/publ/pwc_banking_050493_uk.pdf

http://www.agdl.lu/

http://www.finansbank.nl/finansbank/netherlands/english/consumer_banking/savings/top_interest_base_account/cgs

http://www.finansbank.nl/finansbank/netherlands/english/consumer_banking/savings/top_interest_base_account/cgs

http://www.dnb.nl/

http://www.efdi.net/scarica.asp%3Fid=47%26Types=DOCUMENTS

http://www.bportugal.pt/default_e.htm

http://www.bportugal.pt/publish/legisl/rgicsf2004_e.pdf

http://www.fgd.bportugal.pt/

http://www.fgd.es/Indexin.htm

http://www.fgd.es/

http://www.ign.se/English/index.html

http://www.ign.se/

http://www.fscs.org.uk/

http://www.fscs.org.uk/consumer/how_to_claim/deposits/

http://www.oba.hu/index.php%3Fm=article%26aid=190

http://www.worldbank.org/research/interest/2003_bank_survey

http://www.iadi.org/Surveys%2520Partial/BDIF%2520-%2520Bulgaria%2520SumQ2A2.pdf

http://www.dif.bg/law.php%3Flang=en

http://www.centralbank.gov.cy/media/pdf/BCRGE_DEPOSITPROTECTION.pdf

http://www.centralbank.gov.cy/

http://www.iadi.org/html/App/SiteContent/Member%2520Profile%2520DIF%2520Czech%2520Republic.pdf

http://www.iadi.org/html/App/SiteContent/Member%2520Profile%2520DIF%2520Czech%2520Republic.pdf

http://www.fpv.cz/

http://www.cnb.cz/www.cnb.cz/en/legislation/acts/download/act_on_banks.pdf

http://www.fpv.cz/index00en.html

http://www.legaltext.ee/text/en/X60018K3.htm

http://www.eestipank.info/pub/en/dokumendid/dokumendid/oigusaktid/seadused/_3.html

http://www.tf.ee/

http://www.iadi.org/html/App/SiteContent/Member%2520Profile%2520Hungary.pdf

http://www.ndif.hu/

http://english.pszaf.hu/engine.aspx%3Fpage=pszafen_authorizationguides

http://www.ndif.hu/


Table 9 (Continued)

Country name

Latvia http://www.fktk.lv/en/, http://www.fktk.lv/downloads/news en/NoguldgarantijulikumsAngl.doc,http://www.fktk.lv/texts files/NoguldgarantijulikumsAngl.doc,http://www.fktk.lv/en/law/credit institutions/laws/credit institution law

Lithuania http://www.idf.lt/eng/about.html, http://www.tdd.lt/idf,http://www.lrkt.lt/dokumentai/1996/n6a0418a.htm

Malta http://www.compensationschemes.org.mt/pages/default.asp,http://www.compensationschemes.org.mt/pages/files/DEPOSITOR%20COMPENSATION%20SCHEME%20REG-LN369%20[English.pdf],http://ec.europa.eu/civiljustice/bankruptcy/bankruptcy mlt en.htm,http://www.compensationschemes.org.mt

Poland http://www.bfg.pl/u235/navi/27927; The law of 14 December 1994 on the Bank Guarantee Fund,http://www.bfg.pl/ itemserver/pdf/rap2005 ang 03 ok.pdf, http://www.bfg.pl;http://www.fgdb.ro/en/rap anual 2004e.pdf

Romania http://www.fgdb.ro/en/rap anual 2005e.pdf; http://www.fgdb.ro/en/rap anual 2004e.pdf;http://www.bnro.ro/def en.htm; http://www.bnro.ro/def en.htm; http://www.bnr.ro/En/FG/

Slovak Republic http://www.slovak.sk/business/legislation/protection bank 5.htm, http://www.fovsr.skSlovenia http://www.bsi.si/html/eng/deposit insurance system/description/description1.htm,

http://www.bsi.si/en/bank-of-slovenia.asp?MapaId=84, http://www.bsi.si

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Documents

Cross-border banking and financial stability in the EU