ABSTRACT
Along with the financial mechanisms established to restore the viability of fragile economies in the Euro area, this chapter examines the structure of Single Deposit Guarantee Scheme (SDGS), a mutual insurance system whereby each member insures the others: basically, it operates as an insurance policy provided to certain depositors by the other banks in the national banking system. This chapter analyses the mechanics of the Deposit Guarantee Scheme (DGS) in the context of the EU Banking Union. It discusses the regulatory framework and main issues for implementing the Scheme among EU Member States such as the use of DGS in resolution and treatment of deposits in insolvency, the use of resolution funds for solvency support and the mutualisation of losses between resolution funds. Further, the role of lender of last resort (LOLR) in bank crisis management is addressed along the creation of common deposit protection, and the possible advantages and synergies for the Deposit Guarantee Network in connection with the launched Capital Markets Union. It is pointed out that the need to establish well-designed deposit insurance schemes to deal with cross-border resolution problems represents a challenge for banking regulators and public authorities.
