An increase in the current deposit coverage level of EUR 100,000 would have limited impact on financial stability and depositor protection, an EBA simulation shows

EBA released a comprehensive report following a simulation and analysis of the deposit coverage level, responding to a request from the EC. The focus of the analysis is on the current coverage level of EUR 100,000 across the EEA. The findings indicate that under the existing coverage, 96% of depositors are fully covered, ensuring they would be reimbursed the full amount of their deposits in the event of a bank failure. Notably, the remaining 4%++ of depositors not fully covered are primarily companies, which, despite being in the minority, hold more than half of the deposits within the EEA.
The report highlights the stability of the proportion of fully covered depositors since the EC’s initial assessment in 2010, despite an overall increase in the amount of deposits. This stability is attributed to the fact that the EUR 100,000 coverage level remains well above the average amount held by an individual depositor, even accounting for inflation over the years.
The analysis extends to simulating the potential impact of increasing the coverage level to EUR 150,000 and EUR 250,000, with additional consideration given to a EUR 1,000,000 coverage exclusively for companies. The results suggest that such adjustments would have minimal impact on the majority of depositors, as they are already fully covered.
Furthermore, the report evaluates the potential extension of coverage to include deposits from public authorities. The conclusion is that such an extension would have limited repercussions on the industry, given the relatively low number of public authorities compared to the overall depositor population across the EU.
In light of the analysis, the EBA recommends maintaining the current coverage level of EUR 100,000. While acknowledging the positive aspects of potential increases in coverage, such changes are deemed costly with limited impact on financial stability and depositor protection, along with the potential downside of increased moral hazard. The report emphasizes the need for a holistic assessment of various elements within the crisis management and deposit insurance framework** beyond the scope of this specific analysis.