Safety Net in the European Union – Challenges for New Members

Argumenta Oeconomica 1-2 (17), 2005

18 Pages Posted: 11 Nov 2013

Date Written: February 1, 2006

Abstract

The paper is devoted to the safety net in the European Union with special interest on issues important for the new EU Members, where foreign capital is controlling a significant part of the sector of the financial intermediaries. We analyzed the current structure of the safety net in 25 countries and pointed out the differences and the weaknesses of certain solutions. This analysis is followed by the presentation of the possible future scenarios of the changes in the safety net with the stress on the need to reduce the potential for contagion effect.

We conclude, that the future structure of the safety net in the EU will be the result of political compromise. The integration of the financial market will not be complete without changes in the structure and philosophy of the regulation, supervision and consumer protection. In new Member States there is a potential for a contagion effect deriving from parent companies via the capital stake channel. In order to reduce the likelihood of such contagion, the supervisory authorities should be granted new instruments and powers. This is also important for the consumer protection and its costs.

Recent years showed that the European financial market is stable, so the decision makers had no incentive to solve the problem of crisis management, especially cost distribution. However, this period of stability seems to be a very good time for discussions involving academics, at the local, regional and European levels.

Keywords: regulation, supervision, deposit guarantee, financial stability

JEL Classification: G21, G28

Suggested Citation

Iwanicz-Drozdowska, Malgorzata, Safety Net in the European Union – Challenges for New Members (February 1, 2006). Argumenta Oeconomica 1-2 (17), 2005, Available at SSRN: https://ssrn.com/abstract=2351378

Malgorzata Iwanicz-Drozdowska (Contact Author)

Warsaw School of Economics, Institute of Finance ( email )

Warsaw
Poland

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