Alternative forms of deposit insurance and the quest for European harmonized deposit guarantee scheme-centred special administrative regimes to handle troubled banks

Abstract

Since normal corporate insolvency proceedings run by law courts and purely aimed at liquidating troubled entities are generally considered inappropriate for peculiar institutions like banks, having a special administrative regime, which provides the authorities with resolution-like tools, is of paramount importance to maintaining the stability of the system and reducing the destruction of value. Still, in order for these special administrative regimes to properly work and, thereby, for the winding up to be orderly, as provided by the Bank Recovery and Resolution Directive, an active and leading role should be played by deposit guarantee schemes. Accordingly, this article advocates the adoption of special administrative regimes dedicated to troubled banks, harmonized at the European Union level and based on the interventionist role of deposit guarantee schemes, which I define as harmonized deposit guarantee scheme-centred special administrative regimes. But, from this perspective, a review of the European Union legislation, with regard to State aid provision and depositor preference, is needed to enable such schemes to properly perform their function through the so-called optional measures. And, in this regard, the article advances some reform proposals.