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.