Assessing the Adequacy of the EU Scheme for Bank Recovery, Resolution and Deposit Insurance in Spain

Abstract

This paper analyzes whether the funds set by the recent EU directives on bank resolution and deposit insurance to create a safer and sounder financial sector (i.e., 1% and 0.8% of covered deposits, respectively) are adequate to cover unexpected losses for the Spanish banking system. By applying a framework based on the foundation internal ratings-based (FIRB) approach established in Basel Capital Accords, we find that the fixed target levels proposed by the EU bank rules would not ensure the highest credit quality for a resolution and deposit insurance Fund (BRDIF) in Spain. Nevertheless, these resources would be sufficient to ensure a good solvency level for the Fund, equivalent to an AA S&P rating in 2013.