Implementation of the mechanism of systemic risk internalisation in the deposit market (pigou tax principle)

Abstract

The deposit guarantee fund’s rate cap mechanism was supplemented by a systemic risk fee based on the Pigou tax principle. The additional systemic risk fee was introduced to curb overly aggressive price competition in the deposit market by creating additional explicit financial costs that can offset the gains to individual banks from increasing their deposit market share. However, the existing inelasticity of the implemented mechanism, manifested by the lack of stable pressure across the entire range of rates, necessitates its reform. In this article the authors reveal the details of the implemented mechanism of internalisation of systemic risk in the deposit market, the reasons that prompted its implementation, assessment of its success and ways of further reform.