The importance of systemic risk assessment in a risk-based common European Union deposit insurance system: case of Lithuania

Abstract

The financial crisis has shown that the deposit insurance system did not help to maintain depositors’ confidence and financial stability for the whole banking sector. In order to ensure equal protection to depositors in all European Union countries, the European Commission presented the common European Union risk-based deposit insurance system model in 2015. In this model, the individual risk of each bank should be measured. However, there are discussions in scientific literature that the amount of systemic risk of the banks should be measured. In the current economy it is very important to measure the arising amount of systemic risk in the banking sector, but even the new E.U. common deposit insurance system model of 2015 does not take systemic risk assessment into account. The aim of the research is to evaluate the risk-based common European deposit insurance system impact on deposit insurance premiums to Lithuanian banks: not only individual banks’ risks, but the systemic risk as well. The most appropriate systemic risk assessment method was selected according to different scientific researchers and strong Lithuanian banking sector concentration. The results showed that inclusion of the systemic risk assessment in risk-based deposit insurance system helps to have more accurate bank risk assessment.