The Planned Reforms of the American and European Deposit Insurance Systems: Similarities and Differences

Last year, at around the same time, two reforms of deposit insurance systems were announced – one in the United States and the other in the European Union. The American proposal of the reform was triggered by the banking crisis of March 2023 (bank runs and failures) and it was put forward by the Federal Deposit Insurance Corporation in May 2023. In Europe, the European Commission published in April 2023 its legislative proposal to reform the current EU framework for crisis management in the banking sector (including both deposit insurance and bank resolution). The EU proposal for the reform was the culmination of a few years of preparatory work based on practical experience from the functioning of the EU crisis management framework which is part of the Banking Union established ten years ago. This article examines key problems that have to be addressed by the proposed reforms as well as potential policy options. The American options include various levels of deposit insurance coverage (limited, targeted, unlimited), while the European approach covers changes to resolution scope and funding (slight or substantial) as well as a broad reform including a common deposit guarantee scheme in the Banking Union. The article discusses advantages and disadvantages of these policy options, presents arguments for and against them, makes an attempt to evaluate the proposed reforms, and indicates how both of the reforms differ from each other and how they are similar.