A key reason full European Deposit Insurance Scheme has faced political resistance is that:

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Question: A key reason full European Deposit Insurance Scheme has faced political resistance is that:

Option a: High-risk banking systems fear that mutualisation would require them to guarantee safer systems’ deposits. This is not the central, widely cited reason for resistance. In many discussions, the concern is less about high-risk banks being forced to subsidize safer ones and more about broader risk-sharing and moral hazard, as well as political economy concerns about who bears costs. The statement oversimplifies the incentives and would not be the primary rationale emphasized in policy debates.

Option b: It would undermine the ECB’s supervisory independence. While there are tensions between banking union mechanisms and national sovereignty, the principal political friction around EDIS is less about undermining the ECB’s independence and more about who bears risk and how mutualisation is designed. This option correctly identifies a potential concern but is not the core or most widely cited reason for resistance in practice.

Option c: Low-risk countries are reluctant to mutualise banking risk with jurisdictions perceived as weaker. This captures a central political economy dynamic: wealthier, lower-risk member states worry that joining a mutual insurance scheme would expose them to bearing losses from higher-risk, weaker jurisdictions. The idea of cross-subsidisation across heterogeneous risk profiles is a fundamental obstacle to agreeing on EDIS, making this option the most accurate depiction of the key resistance.

Option d: The Single Resolution Board already fully mutualises all banking losses, making EDIS redundant. This is factually inaccurate. The Single Resolution Board deals with bank resolutions, not deposit insurance mutualisation, and it does not imply that full EDIS is redundant. The claim misstates the current institutional arrangements and the purpose of the SRB.

Summary of reasoning: The strongest explanation points to the concern that low-risk countries would be asked to share losses with weaker jurisdictions, creating a perceived cross-subsidy and moral hazard issue. The other options describe related concerns or mischaracterizations, but they do not align with the predominant political economy reasoning behind resistance to a full EDIS.

SESS0026_25-26 MCQ test - MOCK

A key reason full European Deposit Insurance Scheme has faced political resistance is that:

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