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Symposium 2009

Solution for Balancing Risk Taking and Financial Regulation

The Challenge

Many observers blame excessive risk taking and inadequate regulation as the core causes of the current global financial crisis that we have been witnessing.

Many observers blame excessive risk taking and inadequate regulation as the core causes of the current global financial crisis that we have been witnessing.

Establish an European Deposit Insurance Agency to insure deposits in banks.

During the financial crisis, Europe has found itself with one central bank and many different national regulators giving different answers to the requests of depositors about their savings, especially those kept by international banks. Individual governments have taken different decisions at different times, increasing confusion and concern in the most dangerous moment of the crisis.

Creating a single European agency, along the lines of the US Federal Deposit Insurance Corporation (FDIC), could preserve and boost public trust in the banking system, assuring that even in the case of major shocks no one will lose any deposits. Its typical role would be to respond immediately when a bank fails, selling deposits and loans of the failed institution to another institution, in a seamless transition from the customer“s point of view.

In addition, by assuming some of national central banks’ powers, a European FDIC could assist national governments and the European Central Bank to assess “systemic risk” and provide a continuous and consistent news and dataflow on the banks that it will be supervising. It could be funded by premiums that banks and savings institutions pay for deposit insurance coverage.

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