Investigating the Efficiency of EU Deposit Guarantee Schemes

This Report considers the various meanings the word "efficiency" can have, the current way Deposit Guarantee Schemes (DGS) operate, and a quantitative analysis investigating the capability of the EU Member States to handle reimbursements or preventive interventions of varying magnitude. Consequently, this Report also describes the various steps of the intervention procedure (both in case of payout and for preventive interventions), the authorities involved and their interaction, and the way DGS manage and invest available funds. Even though it has been difficult to draw general and harmonized conclusions (as each incident was distinctive), some key conclusions can be made.JRC.G.9-Econometrics and statistical support to antifrau

Natural Catastrophes: Risk Relevance and Insurance Coverage in EU

The scientific exercise developed aims at drawing a picture of the relevance of various natural catastrophes in the EU Member States and of the development of the Natural Catastrophes insurance markets. The exercise focuses on flood, storm, earthquake and drought and for each natural catastrophe JRC collected available qualitative and quantitative information in order to describe the size of the risk and to describe existing practices of insurance systems. The collected information has the purpose to create clusters of Member States facing similar situations and to identify open issues concerning insurance systems in place.JRC.G.3-Econometrics and applied statistic

European Bond Issuers

The recent financial and sovereign crises emphasised the need to further integrate the European financial system. In particular, the overreliance on bank financing coupled with a segmented financial system affected corporate growth in an uneven fashion across countries, thus widening existing economic gaps. The European Banking Union constitutes a major step towards integration; the construction of the Capital Markets Union comes next in the policy agenda. In 2015, the Juncker Commission launched a vast programme of reforms with the purpose to enhance the European Capital Market Union. The Action Plan on Building a Capital Market Union mentions the easier access to capital markets across Europe as a major objective in the construction, and the first of the three stated objectives of the Capital Market Union is to “broaden the sources of financing in Europe towards nonbank financing by giving a stronger role to capital markets.” This study aims at contributing to the Capital Market Union plan by providing an analysis of the European non-financial companies, which issue bonds. Bonds are debt instruments traded in markets, and constitute a traditional alternative to bank loans. The study investigates the characteristics of bond issuers as well as the respective bond terms, in the period 2004-2015. We use the databank of bonds published by Dealogic DCM, that we linked to Bureau van Dijk ORBIS to extract financial information about bond issuers. Our findings show first that the crisis led to a contraction of the bond amounts issued and to a shortening of the maturities; yet, in the aftermath of the crisis, riskier companies issued larger bond amounts. Second, bond issuers are significantly different from non-bond issuers; for instance, they are larger and older, and listed firms are more likely to issue bonds. Differences are comparable whether we consider the full sample, the sample of large firms, or the sample of listed companies. Yet, leverage is an exception: consistently with previous studies, we do find that among listed firms, bond issuers are more leveraged; the difference vanishes as we consider the full sample. Last, investigating bond terms, we find that larger companies are likely to have more balanced maturity term structures of bonds. The reports suggest a number of variations among corporations and bond terms over time, which should be subject to further analysis.JRC.B.1-Finance and Econom

Risk-based Contributions in EU Deposit Guarantee Schemes: Current Practices

This report describes the risk-based models and monitoring systems applied across the EU MS. On the one hand, it broadly illustrates systems currently applied across the EU to highlight the fundamental principles underlying risk determination; on the other, it provides more technical details of each method, including a description of the mathematical tools employed. Moreover, a numerical example of each risk-based methodology is discussed in order to reproduce the individual steps of the calculation.JRC.G.9-Econometrics and statistical support to antifrau

SYMBOL MODEL DATABASE and ANALYSES for PUBLIC FINANCE SUSTAINABILITY

In the present report, we describe the main steps we have taken in order to create a sound database for the European Union Member States banking system. The final goal is to use this database as source for input variables of SYMBOL (SYstemic Model of Banking Originated Losses) model, developed by the Join Research Centre of Ispra in cooperation with the European Commission Direcotrate General for Internal Market and Services and experts from academia, for monitoring financial crises. SYMBOL simulates potential crises in the banking sector under various assumptions, and it allows assessing the cumulative effects of different regulatory measures (e.g. higher capital requirements, strengthened deposit insurance and introduction of resolution funds) and their most effective combinations. It uses items in bank's balance sheet to estimate the potential losses for a given banking system via a Monte Carlo analysis. The model is flexible and can be deployed either on a single country or on a set of financial institutions sharing common features. The report also shows an application of SYMBOL for assessing the impact on public finance of a crisis in the baning sector and compares the current regulatory framework with a future scenario where the new capital requirements set in Basel III and an effective framework for bank resolution are in place.JRC.G.1-Scientific Support to Financial Analysi

Possible models for risk-based contributions to EU Deposit Guarantee Schemes

JRC has investigated potential risk-based models for computing contributions of Deposit Guarantee Scheme (DGS) and assessed their potential impact across Member States. The report illustrates three possible approaches for calculating contributions on the basis of the risk profile of the DGS members (i.e. banks) and presents a preliminary impact assessment exercise.JRC.DG.G.9-Econometrics and applied statistic

JRC technical work supporting Commission second level legislation on risk based contributions to the (single) resolution fund

JRC supported the DG MARKT by developing quantitative analyses for the preparation of the second level legislation on bank contributions to be paid to the EU national Resolution Funds and to the Single Resolution Fund SRF for countries participating to the Banking Union. The present report summarizes all the extensive analyses on the calculation of banks contributions supporting the whole policy process. All analyses were based on a dataset that JRC built assembling individual bank unconsolidated balance sheet data, provided directly by the MS. JRC developed the technical details to measure the risk profile of each bank. Starting from a selection of balance sheet indicators, which account for the different aspects of each bank activity, the methodology aggregates them into a single composite risk indicator. The risk indicator is then combined with the bank size measure to compute the share of aggregated contribution each bank joining the fund would pay. JRC also investigated the decrease in contributions of applying a special treatment for the computation of the small banks’ contributions: these banks will not pay contributions based on their risk profile but will be instead lump-sum contributions, depending on their size only. JRC assessed the sensitivity of the distribution of contributions when changing some elements of the overall mechanism used to measure risk and compute contributions. Finally, following the discussion at the political level, JRC also assessed some technical issues related to the calculation of the contribution base and it tested the impact on banks contributions of different options for the phasing in of the single resolution fund.JRC.G.1-Financial and Economic Analysi

Cost Impact of Changing the Funding Mechanisms for Deposit-Guarantee

Directive 94/19/EC on Deposit Guarantee Schemes (DGS) requires EU Member States to have DGS in place, which protect depositors to a certain extent in cases of default. The Directive leaves many structural aspects of DGS to the discretion of MS, including the way DGS are financed. As a result, the DGS funding mechanisms are very heterogeneous among MS. Some MS finance their scheme by means of regular contributions, whereas others levy contributions only in the event of a crisis. In between, there are a wide variety of schemes which collect both ex-ante contributions and ex-post levies. This study aims at investigating the effects of harmonising the mechanisms for funding DGS across the EU with the aid of a scenario analysis which applies three different ex-ante scenarios across the EU MS.JRC.G.9-Econometrics and statistical support to antifrau

The EU sovereign debt crisis: potential effects on EU banking systems and policy options

This paper aims at investigating some of the critical issues highlighted by the sovereign debt crisis in European Union Member States. The goal is twofold: 1) Quantify, via a development of the SYMBOL model here firstly presented, the impact in terms of higher risk for the EU banking systems of haircuts of sovereign debts of some EU MS, which have been particularly touched by the sovereign crisis; 2) evaluate and compare the policy options which have been adopted to address the issue. In particular the analysis compares the measures within the Basel III Accord, which increases the quality and quantity of capital that banks should set aside to cover from unexpected losses, with the agreement on bank recapitalisation and funding reached by the European Council in October 2011, which responded to the urgent consequences of the sovereign bonds crisis in the EU. The analysis is performed on 65 of the large EU banking groups identified by the European Banking Authority, via a futher development of the SYMBOL model that allows estimating the banks PD without Monte Carlo simulations. Results show that the haircuts on sovereign debts of EU MS in crisis would heavily worsen the stability of their banking systems but could also sometimes affect financial stability of other EU countries. We also show that the creation of a temporary capital buffer in the form of a capital target, necessitated by the exceptional circumstances prevailing in some EU MS, represent a step forward to Basel III rules.JRC.G.1-Scientific Support to Financial Analysi

Financial Activities Taxes and Banks' Systemic Risk

The recent financial crisis has highlighted the risks posed by individual banks to the entire banking system. Next to the issue of determining individual contributions to systemic risk, the question of additional taxes on the financial sector has been debated. This paper uses SYMBOL, a micro-simulation model of the banking system, to estimate these individual contributions and compares them to the potential individual tax liabilities of banks under the assumption of a Financial Activity Tax.JRC.G.1-Scientific Support to Financial Analysi