Research on Risk-Based Common European Union Deposit Insurance System in Lithuanian Banks

Abstract

Global 2008 financial crisis has shown that the deposit insurance system did not help to maintain depositor confidence and the whole banking sector financial stability in the beginning of banks’ failure. Scientific discussions emphasized that the main problem associated with the current deposit insurance system is the fact that many EU countries, current deposit systems do not evaluate the banks’ risks calculating deposit insurance premiums, and thus do not provide sufficient stability of the banking system. The aim of the research is to evaluate the risk-based common European deposit insurance system impact on deposit insurance premiums to Lithuanian banks. The research period for the analysis of deposit insurance premiums to Lithuanian banks is 2010–2014. In the risk-based model, the main risk indicators are evaluated by European Banking Authority. Performed deposit insurance system problem analysis showed that deposit insurance system has positive characteristics, it is a key tool in the fight against depositors panic and helps to maintain confidence in the financial institutions, but it also has a negative impact. Theoretical deposit insurance models evaluation showed that in many EU countries, the existing deposit insurance systems do not provide sufficient protection on depositors because contributions are not based on banks’ risk assessment, which means that deposit insurance does not perform one of its basic functions. The introduction of risk-based deposit insurance system would redistribute contributions among the Lithuanian banks and thus contribute to the negative effects of deposit insurance systems mitigation and growth of all financial system stability.