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Deposit Insurance around the WorldIssues of Design and Implementation$
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Asli Demirguc-Kunt, Edward J. Kane, and Luc Laeven

Print publication date: 2008

Print ISBN-13: 9780262042543

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262042543.001.0001

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Deposit Overinsurance in EU Accession Countries

Deposit Overinsurance in EU Accession Countries

(p.281) 8 Deposit Overinsurance in EU Accession Countries
Deposit Insurance around the World

Nikolay Nenovsky

Kalina Dimitrova

The MIT Press

This chapter explores the two major phases of the dynamics of deposit insurance (DI) systems. The first phase involves the implicit and full DI inherited from EU’s socialist past, while the second phase notes how the banking crises and EU harmonization have resulted in the explicit and high level of deposit insurance. It is suggested that the nominal harmonization of DI systems ignored the real condition of the economies and banking systems. This then resulted in great costs to the EU. The chapter briefly discusses the EU Directive on Deposit Guarantee Schemes of 1994 and argues that accession countries are overinsured. The reasons for this overinsurance are then analyzed and their relation to moral hazard is determined. Finally, the channels through which overinsurance can and have influenced the Euro Area’s financial system are explored.

Keywords:   socialism, European Union, banking crises, EU harmonization, deposit insurance, nominal harmonization, EU Directive, Deposit Guarantee Schemes, overinsurance

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