Deposit Insurance

Guaranteed Side Effects

July 9, 2015 - Pensioners line up outside the main gate of the national bank of Greece to withdraw a maximum of 120 euros ($134) in central Athens. Alexandros Michailidis - Depo Photos [ Rechtehinweis: picture alliance / ZUMA Press ]
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  • Why it matters

    Why it matters

    Deposit insurance guarantees arguably form the backbone of the entire global financial system. But some economists are starting to ask whether they actually create more risks than they solve.

  • Facts

    Facts

    • A typical bank account in the United States is insured for up to $250,000 by a state-backed deposit guarantee fund.
    • Individual European Union members also insure bank accounts for up to €100,000.
    • The European Union is considering a common deposit insurance that would pool the risks of bank collapses across the 28-nation bloc.
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    Audio

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What good is deposit insurance really?

It’s a question that Europe needs to ask itself as it mulls creating a continent-wide scheme to protect consumers when a bank goes bust.

Images of Greeks and Cypriots standing outside of banks at the height of the euro-zone’s debt crisis are still etched in the memories of many here in Europe. And yet, the scheme certainly has its detractors, especially in Germany, where policymakers fear that Europe’s largest economy might one day have to foot the bill for the collapse of, say, an Italian bank.

But it’s not just in Germany where state-backed guarantees of bank deposits are now being viewed with some suspicion. A recent study from the United States, which looked at such schemes from around the world, has suggested that insuring customers may actually cause more problems than it solves.

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