Risk contribution to deposit insurance: Evidence from commercial and cooperative banks in the Eurozone

Abstract

This paper analyses how the risk of commercial and cooperative banks may affect the European Deposit Guarantee Scheme (EDIS) to assess the appropriateness of a differentiated contribution regime. Evidence shows that these institutions have different objectives, ownership structures and operational approaches that impact their risk profile. As a result, a single regulatory approach may not be appropriate and may place an additional burden on cooperative banks. Using a simulation model and a sample of banks representing 81% of deposits in the Eurozone between 2018 and 2021, we analyse risk, deposit insurance losses and financial coverage needs. We find that cooperative banks are less risky, generate fewer losses and should provide fewer resources compared to commercial banks. These findings are important to achieve a more equitable and efficient funding policy in the future development of the EDIS as the third pillar to complete the Banking Union.