Moving toward risk-based deposit insurance premiums in the European Union: the case of Spain

This article provides a scenario-based analysis of how the European Union proposal for a new funding model for deposit insurance systems (DISs) would affect the Spanish banking sector. We examine the risk profiles of commercial banks, savings banks and credit cooperatives over the period 2007 to 2011 and compare the contributions to the deposit insurance fund (DIF) under the current flat-rate regime with those that would have occurred under the new risk-sensitive system. We find that a risk-based scheme could provide an incentive for sound management by reducing the premiums for credit institutions with better risk profiles. We also conclude that the proposed reform may help to mitigate the moral hazard associated with larger credit institutions.