Bank Regulation and Deposit Insurance System in Achieving Banking and Financial Stability

 

Regulation and supervision of the banking system play a key role in maintaining banking and financial stability, especially in Europe (except the Scandinavian countries) where systems are bank-centric. They limit an individual institution risk, systemic risks and contribute to development of the financial system. Also deposit insurance system, contributes significantly to this as a form of regulation of the banking system which protects depositors, their savings and banks. The positive effects of the system are particularly pronounced in the period of financial instability. It prevents outflows of deposits from banks and systemic banking crises. After the deregulation of the financial system and the global financial crisis 2007/2008, the need for stronger regulation of banking systems was pointed out, as well as the faults of the previous deposit insurance systems. Regulation and supervision have confirmed their key role in maintaining the stability of financial systems and in the crisis conditions caused by COVID-19. Central banks have defined and implemented measures to help national economies. For eurozone countries important role in this crisis has European Stabilization Mechanism but also the banking union and deposit insurance systems. Therefore, it is justified to investigate the features of regulation and supervision and deposit insurance system, which, together with the central bank as the lender of last resort, represent elements of the safety net. The project will perform a comparative analysis of banking systems, regulation and supervision of banks and deposit insurance systems of EU and Southeast European countries (with special emphasis on Croatia) in times of crisis and during pandemic COVID-19. The effects of the deposit insurance system on banking stability will be examined using dynamic panel analysis (Arellano-Bond). A special line of research relates to the regulation and operation of conventional and Islamic banking with regard to differences in system objectives and risk taking. 

The project will prove the scientific hypothesis that during the crisis, i.e. in conditions of the COVID-19, the stability of the financial systems of EU is achived with regulation, supervision and deposit insurance systems.