Where resolution has the effect of preventing losses to depositors, a relevant EU Deposit Guarantee Scheme (DGS) is liable for the amount by which covered deposits would have been written down had they been written down to the same extent as other creditors of equal priority. But DGS liability shall not be greater than the amount which it would have had to pay out in a conventional insolvency, or 50% of its target pre-funding level. Critically discuss.
You may also fnd it useful to review the chapter through the following questions:
• Why are Deposit Guarantee Schemes relevant to bank resolution?
• How are Deposit Guarantee Schemes used in the context of resolution and the treat–
ment of deposits in insolvency?
• How do Deposit Guarantee Schemes work in the EU Banking Union?
• What is the level of interconnection between national DGSs?
• To what extent is the strength of a DGS ultimately based on its recourse to financing
from the sponsor national government?
