Tomasz Obal Basel, May 2007 Deposit Insurance Cross-Border Issues Burden-sharing

Determination of the problem issues in the broad perspective who should cover the costs? who should take the risk? Burden-sharing Players: Banks Customers State (taxpayers) Safety net institutions Supervision Deposit Insurance Schemes Factors for analyses: risks (financial, moral hazard, others) financial costs TBTF doctrine

Burden-sharing Identification of the crisis situation simple model I. direct operations II. branch III. subsidiary Much more complicated situation in case of multinational corporation Mother Bank Crisis border

Burden-sharing EU Foreign Bank's Operations no. Foreign branches 2003 Austria18 Belgium38 Denmark15 Germany65 Greece14 Spain50 France52 Irland31 Italy76 Luxembourg43 Netherlands20 Portugal22 Finland18 Sweden17 UK84 Czech Republic9 Hungary0 Poland1 Slovenia1 Slovakia3 Romania7 EU polygon for empirical analyses of „free cross- border banking” The same regulations for all countries Now 16 Home country principle

Burden-sharing Mother Bank I. direct operations II. branch Home country principle DIS facing bank’s failure Financial risks -Banks -Possible Taxpayers Operational risk Financial risks -partly loss for customers Operational risk Other risks (reputation) ex-post / ex-ante model is there any difference ? Simple model

Burden-sharing Questions in more complicated model Cross-border risk minimizers Goals: -to minimize risks -to minimize costs What costs and risks ? - TBTF doctrine Which banks are „too big”, which are „too important”?

Basel May 2007 Thank you