Deposit Guarantee Schemes (DGS) aim at protecting depositors of all credit institutions against bank failures. One of the most critical issues about DGS concerns the criteria to be used to assess the risk‐based contribution that each member bank should pay to the Scheme. We propose an alternative model for risk-based contributions based on CDS spreads. We construct the same balance sheet ratios used in the Italian DGSs for a sample of EU banks issuing CDSs. Subsequently we perform panel regressions to explore the relationship between CDS spreads and balance sheet indicators. Results are used to construct an Aggregate Indicator of bank riskiness that is compared with the Aggregate Indicator currently used in the analyzed DGS.
European deposit guarantee schemes: revision of risk based contributions using CDS spreads
DE LISA, RICCARDO;ZEDDA, STEFANO
2012-01-01
Abstract
Deposit Guarantee Schemes (DGS) aim at protecting depositors of all credit institutions against bank failures. One of the most critical issues about DGS concerns the criteria to be used to assess the risk‐based contribution that each member bank should pay to the Scheme. We propose an alternative model for risk-based contributions based on CDS spreads. We construct the same balance sheet ratios used in the Italian DGSs for a sample of EU banks issuing CDSs. Subsequently we perform panel regressions to explore the relationship between CDS spreads and balance sheet indicators. Results are used to construct an Aggregate Indicator of bank riskiness that is compared with the Aggregate Indicator currently used in the analyzed DGS.
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