Trust and credibility – and the role of financial supervision in deposit insurance in Germany​

Speech by Bafin President Mark Branson delivered at the IADI 25th Annual General Meeting and Conference in Berlin, 29 October 2026.

I suppose it’s just a coincidence. However, 29 October is an appropriate date for the IADI 25th Annual General Meeting. Congratulations on your anniversary!

Today marks almost 100 years since the stock market plunged dramatically on Wall Street on the morning of 29 October. On this infamous “Black Tuesday” in 1929, large crowds rushed to the banks in a panic hoping to protect their savings.

Among the lessons from this October were insights into the psychology of fear. We all know that the financial system hinges on the credibility of its market participants.

Today, savers no longer need to rush to their banks; a few taps on a smartphone is all it takes to transfer funds. Refinancing crises and bank runs now unfold far more rapidly than in the past. In past financial crises, it often took months for liquidity outflows to reach dangerous levels. Today, this can happen in a matter of hours.

As financial supervisors, we must help ensure that established safety nets, such as deposit guarantee schemes, continue to serve their purpose. That they remain credible while keeping pace with the risks posed by digitalisation. And that is what I would like to address today: Trust and credibility – and the role of financial supervision in deposit insurance in Germany. I would like to cover three points.

First: a credible deposit protection is an essential counterbalance to the inherent instability of bank balance sheets.

Let’s start with deposit insurance in Germany. In most European countries, there is one statutory deposit guarantee scheme. In Germany, we have a tried-and-tested three-pillar model.

The first pillar is the statutory deposit guarantee scheme, the Compensation Scheme of German Private Banks. The scheme applies to private credit institutions that accept deposits. It is a body empowered by law to exercise public authority under the umbrella of the Association of German Banks.

The second pillar consists of legally recognised institutional protection schemes. This includes the cross-guarantee schemes of the German Savings Banks Association and of the cooperative banks. These guarantee schemes provide the first level of statutory protection for institutional viability. The second line of defence for these banks is the statutory entitlement to €100,000 of deposit insurance.

The third pillar consists of the voluntary deposit guarantee schemes operated by the German banking associations. They provide supplementary cover to the statutory compensation, offering protection beyond the €100,000 guaranteed by law.

As required by EU law for statutory systems, the German deposit guarantee schemes are financed on an ex-ante basis. The contributions are risk-based.

At a global level, deposit guarantee schemes are increasingly being granted powers extending beyond the “pay box” function, enabling them to work with supervisory authorities to avert the need for compensation. However, deposit guarantee schemes with a “risk minimiser” mandate remain in the minority in Europe.

The statutory German deposit protection system was not designed from scratch, but has evolved over decades. And it works: outflows of insured deposits relative to uninsured deposits are minimal, even in clear-cut crisis situations. It is a framework that contributes to the stability of the financial system.

Since 1998, the Compensation Scheme of German Private Banks has successfully handled 15 compensation events. And since 2015, the relatively short compensation period of seven working days has applied.

There have been no compensation events under the other two German institutional protection schemes. The first level of institutional protection has worked as planned.

At Bafin, our role is to supervise the guarantee systems. In the event of a crisis, effective coordination between supervisory authorities, resolution authorities and deposit guarantee schemes is essential.

Let us look at a recent case: In March 2025, Bafin determined that compensation was payable in relation to an insolvent institution. The extent of the losses: around 1,232 creditors held claims totalling approximately €42 million against the institution. For the compensation process, the Compensation Scheme of German Private Banks used a new digital compensation platform for the first time. The compensation of creditors proceeded smoothly and within the statutory period of seven working days.

Which brings me to my second point: the dilemma of deposit protection.

Second: the downside of deposit protection is moral hazard.

The weak point of deposit guarantee and other protection schemes is moral hazard, where market participants take greater risks because they many of the negative consequences of their behaviour will be borne by other scheme members.

In the case of small banks – such as savings banks and cooperative banks – we have joint liability arrangements that have developed over time. On the one hand, of course, this lends credibility.

On the other hand, the institutional protection schemes no longer merely protect savers; they protect the bank from itself. If a small bank knows that the collective will always bail it out in an emergency, there is less deterrent to engaging in risky business. Coupled with the digital inflow of platform funds, this creates a risky dynamic: the risk is spread across the network, whilst the interest-seekers within it reap the returns. Well-intentioned collective solidarity could thus become an incentive for reckless business practices.

Deposit insurance must not become over-insurance. If we have a system that cushions almost everything, this comes at the expense of responsibility.

Of course, for all such schemes, credibility is everything. And for a large number of small banks, mutual protection is highly credible. For larger banks, however, these systems are not equipped to cope or would have a highly pro-cyclical effect.

That is why stronger deposit guarantee schemes or credible resolution schemes are essential – the latter could even replace deposit insurance for the large banks for which they are intended. We know from experience: the better a potential resolution is prepared, the less likely we are to need it. It may be uncomfortable for institutions to consider their own resolvability, but this forces them to take a critical look at their structures, operations and risks.

Looking to the future, we have to acknowledge that the credibility of deposit guarantee schemes depends on a certain degree of cross-subsidisation – the large contributors, for whom the systems would often be insufficient, contribute to ensuring the survival of the small ones. That means that changes to such a system must therefore be approached with caution.

We will be initiating this discussion again at the European level soon. And that brings me to my final point.

Third: greater harmonisation in Europe must not come at the expense of tried-and-tested safeguard mechanisms.

The reform of the EU Crisis Management and Deposit Insurance (CMDI) framework, which entered into force on 10 May 2026, is intended to optimise the handling of bank failures in Europe. It also reforms the Deposit Guarantee Schemes Directive (DGSD). We regard this as a step forward for European crisis management. It will strengthen national deposit guarantee schemes.

The Directive promotes a regulatory approach that preserves existing diversity while ensuring a uniform level of depositor protection across the European Union. From a German perspective, the retention of the German institutional protection schemes is also a positive aspect. So too is the retention of the “super-preference”. The priority status of deposit guarantee schemes in the event of insolvency remains in place.

Discussions will also recommence regarding the Single Deposit Insurance Mechanism (formerly: EDIS). In our view, there are important guiding principles for this discussion: we are fundamentally open to an evolution of the European system. However, a new system must bring tangible benefits for the banking union.

Ultimately, the credibility of the system as a whole must increase, not decrease. And the tried-and-tested system must not be weakened.

The credibility of every part of the system is important: if systems are separated from one another – for example a European scheme for large banks and national schemes for smaller banks – all individual parts must remain credible. If large institutions are separated from smaller ones, the current mutualisation or cross-subsidisation will cease, with clear consequences for competition.

Such changes in the competitive landscape are also political decisions which should not simply be tacitly accepted as an inevitable side effect of changes to the system.

In my view it must remain possible to have a diverse banking system with a mix of larger and smaller institutions. Not only are oligopolistic or heavily concentrated banking systems bad for consumer choice. They also exacerbate “too big to fail” risks, which is not in the interest of financial stability.

Let me conclude. Financial crisis may change its form. But the lessons of 1929 remain relevant today. When uncertainty arises, confidence can disappear in an instant. We cannot prevent every crisis, but we can prepare for them.

Unlike 100 years ago, we now have effective deposit guarantee schemes. Extensive regulation. And strong financial supervision. Yet deposit insurance faces a dilemma. It is meant to provide security. But not to create the wrong incentives. It should be credible and strong. But not undermine banks’ own sense of responsibility.

That’s why deposit protection, financial supervision and resolution must work closely together. Let’s all do our best to give people a good reason to trust the financial system, even on “Black Tuesdays”.