Evaluating Esisuisse’s Protection Against Bank Runs

From Switzerland to the World: Examining the Future of Deposit Insurance in a Global Context

In times of crisis, people often worry about the safety of their money in banks. In Switzerland, Esisuisse plays a crucial role in securing bank deposits and preventing panic withdrawals. Founded 40 years ago, this organization ensures that bank customers are protected up to 100,000 francs per customer and banking relationship in the event of a bank’s bankruptcy.

Despite its importance, Esisuisse remains relatively unknown, both domestically and internationally. The organization has been subject to scrutiny, particularly from the International Monetary Fund (IMF), which has identified certain shortcomings in the Swiss deposit protection system. One key point of contention is the limited coverage of insured deposits and the lack of alternative financing mechanisms if the existing funds are insufficient.

The IMF has called for reforms to strengthen deposit protection in Switzerland, including the establishment of a fully pre-financed fund and broader functions beyond simply paying out deposits. However, the Swiss model, which is based on self-regulation by banks and a private association (Esisuisse), has its own unique characteristics that differ from global trends in deposit insurance.

Proponents of the Swiss model argue that certain ambiguities in the system can be disciplinary and prevent moral hazard. They point to the fact that stronger deposit insurance may not have prevented crises like the one experienced by Credit Suisse, which primarily affected unsecured deposits. While some argue that reforms may be necessary to address these concerns, others believe that Switzerland’s approach should remain unchanged due to its effectiveness and independence from state intervention.

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