Building up a fund today to pay victims of future bank collapses is unnecessary, says a new paper published by the Australian Centre for Financial Studies. But, the paper says, there is a case for banks and other authorised deposit-taking institutions to pay a fee for the "aura of government protection" provided by the Government's Financial Claims Scheme.Last month, Treasury published a consultation paper on the future shape of the scheme. The scheme aims to protect depositors from losses in the event that an Australian ADI fails. The scheme was introduced during the global financial crisis It replaced a less formal scheme where regulators undertook to "protect" depositors.The Treasury paper canvassed reducing the "cap", the $1 million maximum amount in a bank deposit covered by the government guarantee on bank deposits. The Treasury paper says the cap should now drop to between $100,000 and $250,000.The ACFS paper, written by ACFS research director Professor Kevin Davis, broadly approves of the scheme and calls most of the new recommendations "relatively straightforward and uncontroversial".It particularly defends the proposal to fund the scheme through an after-the-event levy on remaining institutions. Building up a fund beforehand with risk-based contributions will not reduce moral hazard, he argues. That's because depositors lack the skills to evaluate differences in risk between various banks and ADIs, and because regulators are likely to force takeovers of failing banks and other ADIs rather than allow them to be liquidated.But the paper also argues some form of charge should be imposed on ADIs to reflect the protection they will get from the government's scheme. The scheme will reduce the likelihood of runs on ADIs by depositors, and let them raise funds more cheaply than non-ADI competitors.ADIs must currently conform to various capital and liquidity requirements. Davis argues it is not clear that those requirements offset the benefits provided by the scheme.Davis was the author of a 2003 study for the Australian government on financial guarantees.