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Evaluating Esisuisse’s Protection Against Bank Runs


Apr 3, 2024

People abroad often find themselves rubbing their eyes in surprise at Switzerland’s unique deposit protection system that is unlike any other in the world. Despite the significance of this system, many people remain unaware of it. Esisuisse, the organization responsible for securing deposits of bank customers, is celebrating its 40th anniversary this year, yet it remains largely unknown.

The Swiss deposit protection system has come under scrutiny, especially from organizations like the IMF, which has called for reforms. The system’s peculiarities, such as the limited coverage of insured deposits and the lack of state guarantees, have sparked debate both within Switzerland and internationally. Critics argue that these unique features could potentially pose a threat to financial stability.

One of the main criticisms of the Swiss deposit protection system is its reliance on bank contributions to fund payouts in the event of a bank failure. Critics argue that this ex-post financing model could exacerbate liquidity issues and have destabilizing effects on the financial system. The IMF is pushing for a shift towards ex-ante financing, where funds are pre-financed and readily available in times of crisis.

Despite the criticisms, proponents of the Swiss model argue that its unique features, such as the high collateral requirements for banks and the partial pre-financing of deposit insurance, provide a robust framework for securing deposits. They believe that the system’s self-regulatory nature, where banks fund and govern the deposit insurance association, is an effective form of industry oversight.

Ultimately, the debate surrounding the Swiss deposit protection system highlights the complex interplay between financial stability, regulatory frameworks, and industry practices. As the IMF and other international organizations continue to push for reforms, Switzerland faces the challenge of balancing the need for strong deposit protection with the realities of a rapidly evolving financial landscape. The outcome of this debate will shape the future of deposit insurance in Switzerland and beyond.

By editor

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