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

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

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

Deposit Guarantee Schemes

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

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