Deposit insurance schemes: target fund and risk-based contributions in line with Basel II regulation

Campolongo F;DE LISA, RICCARDO;ZEDDA, STEFANO;Vallascas F;Marchesi M.

2010-01-01

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Abstract

This paper discusses a deposit insurance model recently developed by De Lisa et al. (2010), highlighting its policy implications. Compared to existing ones, the model proposed by De Lisa et al. (2010) presents the important advantage of taking into account Basel II banking regulation, thus linking two pillars of financial safety net: banks' capital requirements and deposit insurance. The model, which estimates the potential loss hitting a Deposit Insurance Scheme (DIS) under several economic scenarios, can be used to establish the target size of the fund, which is the amount of money that the DIS should have available in case of need. Moreover the model can be used to estimate the contribution (to this loss) that each bank should pay to the fund according to its degree of riskiness.