In other words, banks with a large share of their deposits in a country with high coverage may have different incentives and access to deposit finance compared to banks in lower coverage countries. A related point could be made about the different types of deposits that are covered by the respective schemes. A second important parameter of a deposit insurance scheme is the funding structure. In the EU some schemes are pre-funded, i.e. they collect the means for being able to pay out in case of a bank failure beforehand, others are only funded ex post, i.e. in case of a bank failure the necessary amounts are collected from other banks, and again other schemes use a combination of the two. For the pre-funded schemes the premium structure is of relevance. Some schemes use flat rates in proportion to banks’ deposits and others take some aspects of bank risk in the pricing into account. All this leads to greatly varying “coverage ratios” across the EU, defined as the size of funds divided by the total amount of deposits covered. The differences in funding structures can lead to differences in the costs of deposit insurance for banks headquartered in different countries. As the views of stakeholders tend to be divided, an important issue for further analysis and research is whether differences in coverage and funding structures have a significant impact on the competition among banks originating from different countries.
In addition, cross-border banks with subsidiary structures have to obey to the rules of the deposit insurance scheme in each country where they are represented. This is complicated and costly for them. Once they have become a member of a scheme and paid into it, it is often impossible to recover the funds in case they would like to streamline the group by moving to a branch structure, e.g. by becoming a Societas Europea. This might discourage cross-border groups from streamlining their company structure, which could become a factor limiting financial integration. In this area as well, I a missing a study providing answers that take all benefits and costs of different options into account. All these observations raise the issue as to whether the mechanisms for coordination at the level of the EU should be used to achieve more convergence in the various aspects of deposit insurance schemes in the context of the presently decentralised approach to financial regulation and stability. This convergence could go in the following directions. First, in addition to setting a lower bound, also the maximum amount covered could be limited and the specification which deposits are included and which not better harmonised. Partial insurance, or the so-called co-insurance, for smaller deposits could be removed where it still exists, as recent experience seems to suggest that it may reintroduce incentives for retail depositors to run a bank. Second, it may be advisable to move towards pre-funded schemes, which are financed through risk-sensitive premia. This would bring bank incentives better in line.