EBA against increasing EU deposit coverage due to limited impact, cost, and moral hazard

Rick Steves

4% of depositors, predominantly companies, hold more than half of all deposits in the EEA. This distribution highlights a significant concentration of deposit value among a small percentage of depositors.


The European Banking Authority (EBA) has released a report analyzing the impact of potential changes to the current deposit coverage level in the European Union, set at EUR 100,000.

This report, prepared in response to a request from the European Commission, sheds light on the implications of altering the coverage level for financial stability, depositor protection, and the industry as a whole.

The current EU deposit coverage of EUR 100,000 covers 96% of depositors in the European Economic Area (EEA), ensuring their full reimbursement in case of bank failure.

4% of depositors hold more than half of all deposits in Europe

The remaining 4% of depositors, predominantly companies, hold more than half of all deposits in the EEA. This distribution highlights a significant concentration of deposit value among a small percentage of depositors.

The EBA’s analysis indicates that since the European Commission’s first assessment in 2010, the proportion of fully covered depositors has remained relatively stable, despite overall increases in deposit amounts.

This stability is attributed to the fact that the EUR 100,000 coverage level still exceeds the average depositor’s balance, even considering inflation over the period.

The EBA conducted simulations to assess the effects of increasing the deposit coverage level to EUR 150,000, EUR 250,000, and a specific EUR 1,000,000 coverage for companies. The findings suggest that such increases would not significantly affect the majority of depositors, as they are already fully covered by the current threshold.

Additionally, the report examined the potential extension of coverage to include public authorities’ deposits. This recommendation, reaffirmed from a 2019 suggestion, concludes that extending coverage to public authorities would have a limited industry impact due to the relatively small number of public authorities compared to the total number of depositors across the EU.

Higher coverage could lead to riskier behavior among banks and depositors

The European Banking Authority (EBA) has concluded, based on its static analysis detailed in the report, that there is no immediate necessity to alter the current deposit coverage level of EUR 100,000. This conclusion is drawn from several key findings:

Limited Impact on Financial Stability and Consumer Protection: The EBA’s analysis revealed that potential increases in the deposit coverage level would yield positive but modest benefits in terms of financial stability and consumer protection. This implies that raising the coverage level would not significantly enhance the safety of the banking system or the protection of depositors beyond the current state.

Cost Implications: Increasing the coverage level would entail substantial costs. These costs could arise from various factors, including the need for banks to contribute more to deposit guarantee schemes and potential regulatory adjustments.

Moral Hazard Concerns: A notable concern highlighted by the EBA is the somewhat negative impact on moral hazard that a higher coverage level could introduce. Moral hazard refers to the risk that providing more extensive insurance coverage could lead to riskier behavior among both banks and depositors, as the safety net becomes more comprehensive.

The EBA noted that while the coverage level is a crucial component of the crisis management and deposit insurance framework, it is just one of many elements that need to be considered.

A comprehensive evaluation of the adequacy of these elements requires a holistic approach, which goes beyond the scope of this particular report. This holistic assessment is essential to ensure that all aspects of the banking crisis management and deposit insurance framework work in harmony to maintain financial stability, protect consumers, and minimize risks such as moral hazard.

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