Deposit insurance and international bank deposits

This paper examines how international depositors respond to national deposit insurance policies. Countries with explicit deposit insurance are found to be relatively attractive to international non-bank depositors. Deposit schemes characterized by coinsurance, a private administration, and a low deposit insurance premium appear to be particularly favored by these depositors. The sensitivity of non-bank deposits to deposit insurance policies opens up the possibility of international regulatory competition in this area. The EU directive on deposit insurance imposes minimum standards on national deposit insurance policies. This directive, however, is silent on several important features of deposit insurance such as the level of the deposit insurance premium. Hence, it may not preclude regulatory competition in Europe.deposit insurance, international deposit

A guide to deposit insurance reform

Deposit insurance was introduced in the United States during the Great Depression primarily to promote financial stability. Stability is enhanced because deposit insurance reduces the likelihood of a bank run. During its first four decades, deposit insurance appeared to work well as few banks failed. But in the 1980s, a wave of financial troubles in the banking and thrift industry exposed an unfortunate side of deposit insurance-moral hazard. In other words, deposit insurance encouraged undercapitalized depository institutions to take excessive risk. The Federal Deposit Insurance Corporation Improvement Act, or FDICIA, was designed to prevent moral hazard, which many observers claim was a major cause of the 1980s crisis. ; Today's banking system is not in crisis. In fact, most banks are doing well. Still, both houses of Congress are debating new ways to reform deposit insurance. The view of many in the banking industry is that currently deposit insurance has a number of flaws. ; Martin provides a guide to key issues in the current deposit insurance debate. He gives a brief history of deposit insurance, exploring the roots of the problems that concern the industry today. Next, he provides an overview of the current reform proposals as they relate to three issues: the size of the fund, the structure of insurance premiums and rebates, and insurance coverage.Deposit insurance

Deposit Insurance without Commitment: Wall St. versus Main St.

This paper studies the provision of deposit insurance without commitment in an economy with heterogenous households. When households are identical, deposit insurance will be provided ex post to reap insurance gains. But the ex post provision of deposit insurance redistributes consumption when households differ in their claims on the banking system as well as in their tax obligations to finance the deposit insurance. Deposit insurance will not be provided ex post if it requires a (socially) undesirable redistribution of consumption which outweighs insurance gains.

Deposit insurance systems and bank risk

The link from deposit insurance to bank risk taking has been widely analysed, but has been the subject of relatively little empirical work. This work contributes to the existing literature by exploring microeconomic aspects of the deposit insurance–bank risk relationship. It employs four of the five IMF core financial soundness indicators, using data from financial statements for 914 banks in 64 countries. It also disaggregates deposit insurance by individual design features. Results, generated using GMM, suggest that deposit insurance mainly affects bank risk through its relationship with profitability and asset quality. An optimal deposit insurance system might have features such as voluntary membership, no cover for foreign currency deposits, no coinsurance, be unfunded, and administered by a private sector manager with the insurance cost borne fully by the private sector