Depositor and investor compensation schemes in the light of the credit crunch : time for a major upheaval?

Abstract

The main objective of this thesis is to investigate whether depositor and investor compensation schemes should be retained, and if yes, whether the whole concept should be reformed in the light of what has been happening in the past few months. A description of the generic characteristics of depositor and investor compensation schemes shall be followed by a brief factual description of the depositor panic and the run on banks that took place especially in England, and the measures taken by Governments around Europe to minimize this. The theoretical side of the subject shall be examined as well. In fact, we shall be examining the rationale behind the setting up of such schemes at European Union level, and putting it in the light of the oft-repeated argument that such schemes are introducing a measure of paternalism - and thus moral hazard - in the system. The various methods of contributions towards schemes shall be discussed as well. An examination of the current legal European and local regime shall also be conducted. In the process, a number of proposals made at European Union level shall be tackled, given that these are a direct response to the recent financial crisis and are meant to address similar situations in the future. This shall be coupled with an empirical study conducted among various depositors and investors and which is meant to throw some light on these persons' knowledge of depositor and investor compensation schemes as well as on the manner in which such schemes affect such persons' behavior. Finally, this thesis shall seek to evaluate the current situation with respect to the subject under review as well as make some proposals for a better implementation of the system.