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Would increasing the guarantee before the crisis (rather than during the crisis, when confidence is shaken) have a calming effect? The European Commission has asked the European Banking Authority (EBA): Would increasing the bank guarantee from 100,000 euros to 150,000 euros, then 250,000 euros and even 1,000,000 euros deter customers from withdrawing their money? Let’s remember that banks are tasked with collecting their customers’ savings in order to re-lend them over different periods of time, assuming that not all depositors want to get their assets back at the same time (except in the event of a panic). . ).
However, the limit of 100,000 euros is already completely sufficient: most depositors are already 96% insured, but the uncovered 4% represents half of the deposits. They are of great economic importance, with the exception that a bank failure does not affect them affects everyone, unless all banks go bankrupt at the same time.
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A limit higher than 100,000 euros would therefore be more of a psychological nature, except that the ABE states that it does not take this aspect into account. The failure of American banks has shown that there is no connection between the guarantee provided and savers’ fear of losing everything.
Average amount
The EBA study reveals interesting figures: A depositor in the European Economic Area will have an average of between 1,309 euros (for Lithuania) and 148,987 euros (for Liechtenstein) in their account. Luxembourg is also doing quite well, with an average balance of over 60,000 euros in its accounts. Half of the depositors will have 14,398 euros in their account.
For companies, this amount varies between 34,208 euros and 775,926 euros. The median is well above the 100,000 euro guarantee currently required by the directive.
In Lithuania, 99.8% of depositors are insured with 100,000 euros, while on the European continent the average is 96%. What would an increase in the guarantee achieve?
It is an impulsive withdrawal of funds that must be avoided: the maturity of bank accounts contributes to this (by blocking the money), but half of private bank accounts are current accounts that can be mobilized directly. 25% of accounts have terms that do not exceed 3 months. 16.6% are banned for more than 3 months. There is money in these accounts that is unemotional in nature.
Legal entities and companies have 72% of current accounts, but in return 24% of accounts have a maturity of more than 3 months.
The three reasons that darken the horizons of banks
simulation
If we increase the bank guarantee to 150,000 euros or 250,000 euros, fully covered deposits would increase from 63.7% to 73.6% or even 81.8%. For companies with a guarantee of 100,000 euros, 87% of companies would be fully covered, but for 250,000 euros we rise to 93.5% and for 1 million euros to almost 100%.
On average, the accounts of the top 2% of legal entities account for 60% of corporate deposits. If these 2% were to withdraw their money in a panic, a bank would lose an average of 20% of deposits.
Public authorities
In the 28 states of the European Economic Area examined by the EBA, public bodies represent 408 billion euros in deposits for 208,014 companies. On average it is 2,901,613 euros per account, although the differences vary depending on the country: 233,904 euros (Greece) to 13,163,202 euros (Luxembourg). Although public bodies have much more than the average 100,000 euros in their accounts, in a nice twist, the EBA tells us that without funding they are motivated to open accounts with several banks in order to diversify their risks.
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Moral hazard
Increasing the guarantee means ignoring moral hazard. With a guarantee of 100,000 euros, the depositor will ask himself a little which bank he wants to trust in order to put pressure on the banks for their cowboy behavior. But who really chooses their bank based on the risks it takes and its good governance (you have to know this and it is often known too late)?
And then the increase in account coverage also results in costs for the bank resolution funds, to which the banks contribute. The change from 100,000 to 150,000 euros would cost the banks 5.2 billion euros more, just for 1.5% more insured private individuals and 3.3% more insured legal entities.
With 250,000 euros we get 10.5 billion and 2.4% more fully covered natural persons and 6.5% more fully covered legal entities.
1 million euros is 11.6 billion euros in additional contributions. It’s not tomorrow that the guarantee will increase to over 100,000 euros.
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