- G. Garcia
- Published Date:
- January 2000
1993, “Looting: The Economic Underworld of Bankruptcy for Profit,” Brookings Papers on Economic Activity: 2, Brookings Institution.
1997, Systemic Bank Restructuring and Macroeconomic Policy (Washington: International Monetary Fund).
1993, “Forbearance and Valuation of Deposit insurance as a Callable Put,” Journal of Banking and Finance, No. 17, pp. 629–43.
Proteccion de Depositos Bancarios en America Latina: Reformas Recientes y su Relevancia para Intermediarios Financieros,” Boletin published by CEMLA (Centro de Estudios Monetarios Latinoamericanos), Mexico-City, Vol. XLIV, No. 6, (November-December 1998).“
1995, “Systemic Risk when Depositor Bear Losses: Five Case Studies,”in Banking, Financial Market, and Systemic Risk, Vol. 7 of Research in Financial Services: Private and Public Policy, ed. by George G. Kaufman(Greenwich, CT: JAI Press), pp. 195–302.
The Basle Committee on Banking Supervision, 1997, “Deposit Protection Schemes in Member Countries of the Basle Committee,” Compendium of Documents Produced by the Basle Committee on Banking Supervision (Basle).
2000, “Deposit Insurance as a Private Club: The Case of Germany.” Paper presented at the World Bank Conference on Deposit Insurance (unpublished; Washington: World Bank).
1988, “Regulating Bank Safety and Performances,” in Restructuring Banking and Financial Services in America” ed. by William S. Haraf and Rosemarie Kushmeider(Washington: American Enterprise Institute).
Board of Governors of the Federal Reserve System, 1999, Using Subordinated Debt as an Instrument of Market Discipline, Staff Study No. 172 (Washington: Board of Governors of the Federal Reserve System).
1998, “The Determinants of Banking Crises in Developing and Developed Countries,” IMF Staff Papers, Vol. 45, No. 1, pp. 81–109.
1999, “Does Deposit Insurance Increase Banking System Stability?” World Bank Policy Research Working Paper, No. 247, (Washington: World Bank).
2000, “Does Deposit Insurance Increase Banking System Stability?” IMF Working Paper 00/3 (Washington: International Monetary Fund).
1999, “Market Discipline and Financial Safety Net Design,” World Bank Policy Research Working Paper No. 283 (Washington: World Bank).
1993, “The Decline of Private Deposit Insurance in the United States,” Carnegie-Rochester Conference Series on Public Policy, Vol. 93, pp. 57–128.
1999, “Recapitalizing Banks with Public Funds: Selected Issues,” IMF Working Paper 99/139 (Washington: International Monetary Fund).
European Union, May 30, 1994, “Directive 94/19/EC of the European Parliament and of the Council on Deposit Guarantee Schemes,” Official Journal of the European Communities, No. L, pp. 135/5–12.
1995, “Prudential Regulation for Banks,”in Financial Stability in a Changing Environment, pp. 281–323 (New York: St. Martins Press).
1998, Toward a Framework for Financial Stability, World Economic and Financial Surveys (Washington: International Monetary Fund).
1990, “Issues in the Reform of Deposit Insurance and the Regulation of Depository Institutions,” IMF Working Paper 90/74 (Washington: International Monetary Fund).
December 1991, “Banking Policy and the Pricing of Deposit Guarantees: A New Approach,” IMF Working Paper 91/131, (Washington: International Monetary Fund).
December 1988, “Deposit Insurance: Policy Issues and Technical Aspects,” IMF Central Banking Seminar (Washington: International Monetary Fund).
1996, “Deposit Insurance: Obtaining the Benefits and Avoiding the Pitfalls,” IMF Working Paper No. 96/83 (Washington: International Monetary Fund).
1997a, Protecting Bank Deposits, Economic Issues Paper No. 9 (Washington: International Monetary Fund).
1997b, “Depositor Protection and Banking Soundness,”in Banking Soundness and Monetary Policy: Issues and Experiences in the Global Economy, ed. by Charles Enoch and John H. Green(Washington: International Monetary Fund).
1999, “Deposit Insurance: Actual and Best Practices,” IMF Working Paper 99/54 (Washington: International Monetary Fund).
2000, “Deposit Insurance and Crisis Management,” IMF Working Paper 00/57 (Washington: International Monetary Fund).
1988, The Federal Reserve: Lender of Last Resort (Cambridge: Harper Row).
2000, “Controlling Fiscal Costs of Banking Crises,” Paper presented at the World Bank’s Conference on Deposit Insurance (unpublished; Washington: World Bank).
1996, “Depositor Protection and Bank Failures in the United Kingdom,” Financial Stability Review, Vol. 1, pp. 38–43.
1989, The S&L Insurance Mess: How Did It Happen? (Washington: The Urban Institute Press).
1992, “How Incentive-Incompatible Deposit-Insurance Funds Fail,” Journal of Financial Services Research, Vol. 4. pp. 51–91.
1995, “Three Paradigms for the Role of Capitalization Requirements in Insured Financial Institutions,” Journal of Banking and Finance, Vol. 19, pp. 431–59.
1999, “Concepts”in Global Public Goods, edited by Kaul, Inge, Isabelle Grunberg, and Marc A. Stern(New York: Oxford University Press).
1977, “Rules Rather than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy, Vol. 85 (June), pp. 473–491.
1995, “Deposit Protection Arrangements: A Comparative Study,” IMF Working Paper 95/134 (Washington: International Monetary Fund).
2000, “Analysis of Proposals for a Minimum Subordinated Debt Requirement,” U.S. Office of the Comptroller of the Currency, Economic and Policy Working Paper 00/04 (Washington).
1996, “Deposit Insurance and Crisis Management,” MAE Operational Paper No. 96/3, (Washington: International Monetary Fund).
1996, Bank Soundness and Macroeconomic Policy (Washington: International Monetary Fund).
2000, Financial Sector Crisis and Restructuring: Lessons from Asia, IMF Occasional Paper No. 188 (Washington: International Monetary Fund).
1980, “Deposit Insurance: Theory and Practice,” Staff Papers, International Monetary Fund, Vol. 27 (September), pp. 578–600.
1993, “Deposit Insurance Reform: A Functional Approach,” Carnegie-Rochester Conference Series on Public Policy. 38.
Netherlands, 1996, The Law of the Kingdom of the Netherlands on Bankruptcy.
1976, “Toward a More General Theory of Regulation,” Journal of Law and Economics, Vol. 19 (June), pp. 152–66.
1987, “Alternative Forms of Deposit Insurance: Pricing and Incentive Issues,” Journal of Banking and Finance, Vol. 11, pp. 291–312.
1987, “A Reexamination of the Over-(Or Under-) Pricing of Deposit Insurance,” Journal of Money, Credit and Banking, Vol. 19, pp. 340–360.
1974, “Theories of Economic Regulation,” Bell Journal of Economics and Management Science, Vol. 5, No. 2, pp. 335–58.
1994, Financial Institutions Management: A Modern Perspective, (Richard D. Irwin Inc. Burn Ridge, Illinois).
1991, Banking Crises: Cases and Issues, ed. (Washington: International Monetary Fund).
1990, “Deposit Insurance in Developing Countries,” World Bank Policy Research and External Affairs Working Paper No. 548 (Washington: World Bank).
United States, Federal Deposit Insurance Corporation, 1996, Manual of Policies and Procedures for Bank Liquidation and Receivership (Washington: FDIC).
United States, House of Representatives, 1991, Federal Deposit Insurance Corporation Improvement Act of 1991: Report to Accompany H.R. 3768 (Washington: U.S. House of Representatives).
1995, Principles of International Insolvency, (London: Sweet and Maxwell).
(broad or narrow)
|Central African Republic1||X||Narrow.|
|Congo, Republic 1||X||Narrow.|
|Zambia||Proposed, but not implemented.|
|Hong Kong SAR||Hong Kong considered and rejected installing a deposit insurance system in 1992; but is currently reconsidering.|
|India||1961||X||Narrow, considering broadening|
|Japan 2||1971 (in full since 1995/96)||X||Broad.|
|Indonesia||1998 (A full, explicit guarantee was introduced in 1998).|
|Korea 3||1996 (currently in full)||X||Broad|
|Malaysia||A full guarantee was introduced in December 1997.|
|Marshall Islands 4||1975||X||Broad.|
|Thailand||In full since 1997. but a draft law is under consideration to replace the full guarantee.|
|Taiwan Province of China||1985/95/99||X (since 2/99)||Broad.|
|Bulgaria||1998||X||Narrow (is considering broadening).|
|Germany 8||1966/76/98||X (official)||X (private)||Narrow.|
|Russia||A draft law was passed by the Parliament but vetoed by the President in 2000. There is an implicit guarantee of household deposits in the savings bank.|
|Turkey 15||1983 (in full since December 1999).||X||Narrow.|
|Israel||Implicit-the central bank has compensated all depositors in full for the last 30 years.|
|Kuwait||Implicit: Kuwait is beginning to consider a formal scheme.|
|Morocco Oman||1993/96 16||X||Broad.|
|Argentina||1971/95||X||Broad in principle.|
|Bolivia||Deposit insurance system proposed in 1999 but not yet enacted.|
|Brazil||1974/81/95||X (de facto)||Narrow.|
|Colombia||1985||X||Broad since 1998.|
|Costa Rica 18||There is an explicit full guarantee, but only for state-owned banks. An explicit, limited scheme is under discussion for both state-owned and private banks.|
|Dominican Republic 19||1962/99||X||Narrow.|
|Ecuador||July 1998. In full December 1998.20||X||Broad.|
|El Salvador 21||1991/2000||X||Broad.|
|Honduras||1999/2000 (in full until 2002).||X||Broad.|
|Jamaica 22||1998 (full from 1997 to 1998).||X||Broad.|
|Mexico 23||1986/90/99 (full: beginning to be phased out).||X||Broad.|
|Panama||Has explicit coverage only for credit.|
|Trinidad & Tobago||1986||X||Broad.|
|United States 25||1934/91.||X 26||Broad.|
|Number of Countries Examined: 85||72 countries offer an explicit deposit insurance system; the guarantee is in full in 11 countries.||62 Schemes27||7 Schemes27||Narrow role in 34 countries; Broad responsibilities in 33 systems.|
|Institutional Membership||Participation by the|
Branches of Foreign Banks
|Cover for Domestic Banks’|
|Tanzania||All licensed banks, including the Tanzania Postal Bank, and financial institutions that take deposits||Yes.|
|Bangladesh||All scheduled private, foreign, and Islamic financial institutions.||Yes.|
|India||Commercial, cooperative and rural banks that are either publicly or privately owned.||Yes.||No.|
|Japan||Commercial, trust, long-term credit and shinkin banks, credit cooperatives, labor and credit associations. A separate scheme covers agricultural and credit cooperatives. Government-related institutions and branches of foreign banks are not covered.||No.||Not normally.|
|Kazakhstan||Banks licensed to accept deposits and that have met international prudential standards||Yes.|
|Korea||Under full coverage: national and regional commercial banks, specialized banks, the Korea Development and Long-term Credit Banks, and branches of foreign banks.||Yes.||Yes.|
|Marshall Is.||Branches of U.S. commercial banks.||Yes.|
|Philippines||All institutions granted a banking license.||Yes.|
|Sri Lanka||Registered banking institutions and cooperative societies carrying on banking business. A new. separate, cross-guarantee, scheme for cooperative societies was initiated in 1999||Voluntary.|
|Taiwan Province of China||All financial institutions licensed to accept deposits or trust funds.||Compulsory, unless covered equivalently by a home-country deposit insurance system.|
|Austria||Credit institutions that take deposits.||Compulsory for non-EU banks. EU banks may opt to “top up.”||Yes, for EU members.|
|Belgium||Licensed credit institutions||Compulsory (unless the home country has an equivalent scheme).||Yes (unless the host country has an equivalent scheme).|
|Bulgaria||All banks legally licensed to take deposits.||Compulsory (unless the home country has an equivalent scheme).||No.|
|Croatia||Commercial and savings banks, but not savings and loan associations||Compulsory (unless the home country has an equivalent scheme).||No.|
|Czech Republic||All licensed banks and the branches and agencies of foreign banks.||Yes.||No.|
|Denmark||Commercial, savings and cooperative banks and the branches of foreign banks.||Compulsory for banks from non-EU countries unless they have comparable coverage, then voluntary.||Yes.|
|Estonia||Credit institutions.||Yes, unless covered by a comparable scheme from home.||No|
|France||All licensed credit institutions since July 1999. (There had previously been a separate scheme for mutual, savings and cooperative banks.)||Compulsory.||Yes (but only for EEA countries).|
|Germany||The official deposit insurance system covers all licensed banking institutions. There are also separate private schemes for commercial banks, savings banks and credit cooperatives.||Voluntary (although all branches in fact participate in the scheme).||Yes: for German banks operating in EU countries. The private sector covers all branches.|
|Gibraltar||Banks incorporated in Gibraltar, offices from banks from non-EEA countries that are authorized to operate in Gibraltar.1||Voluntary for EU banks to “bottom up” coverage. Compulsory for non-EU banks lacking comparable coverage.||No.|
|Greece||All credit institutions authorized to conduct banking business in Greece except for the Postal Savings Bank, the Deposit and Loan Fund, and credit cooperatives.||Compulsory (unless the home country has an equivalent scheme).||Yes (unless the host country has an equivalent scheme).|
|Hungary||All types of licensed financial institutions, except state-guaranteed institutions and credit cooperatives.||Yes.|
|Iceland||Until January 2000. Iceland had two separate deposit insurance systems-one for commercial banks and the other for savings banks. They have now been combined.|
|Ireland||All authorized credit institutions, including building societies.||Compulsory, except for credit institutions authorized in another EEA country.||No, except within the EEA.|
|Italy||There are two separate deposit insurance systems, one for commercial banks and the other for smaller mutual and cooperative institutions.||Voluntary||Yes, for EU (unless the host country has an equivalent scheme).|
|Latvia||All banks authorized to accept deposits from natural persons.||…||No.|
|Lithuania||Lithuanian commercial banks and state banks where the state holds less than 50% of the shares.||…||No.|
|Luxembourg||All institutions licensed to accept deposits.||Compulsory.||No.|
|Macedonia||Banks and savings houses in Macedonia and branches of foreign banks registered in Macedonia.||Yes, voluntary.||No.|
|Netherlands||All financial institutions licensed to cake deposits.||Compulsory.||No.|
|Norway||There are separate schemes for commercial banks and savings banks.|
|Poland||All banks operating in Poland, except for cooperative banks, which have a separate scheme.||Yes.||No.|
|Portugal||Credit institutions that have their head office in Portugal and are authorized to take deposits and branches of non-EU banks.||Compulsory (unless the home country has an equivalent scheme). EU banks may “top up” their home coverage.||No.|
|Slovak Republic||Commercial banks and building societies.|
|Spain||All Spanish credit institutions included in the Register of Banks. There are three separate schemes: one for commercial banks, one for savings banks, and one for credit cooperatives.||Voluntary.||Yes (only for EEA countries).|
|Sweden||All Swedish and foreign commercial banks and all investment firms that are licensed to accept deposits.||Voluntary for EEA and non-EEA banks (if the home country has an equivalent scheme).||Yes (voluntary for branches in EEA countries and possible with the permission of the deposit insurance system for branches elsewhere.|
|Switzerland||All banks operating in Switzerland, i.e. members of the Swiss Bankers’Association||Yes.||No.|
|Turkey||Normally banks licensed to take household savings deposits.|
|Ukraine||Licensed commercial banks that are included in the National Bank of Ukraine’s Register of Banks. The Savings Bank of Ukraine is not a member.||Yes.||No.|
|United Kingdom||Banks licensed to take deposits and incorporated in the United Kingdom. non-EEA incorporated banks that are authorized to take deposits through UK offices, and branches of UK incorporated banks in the EEA, Building societies have a separate scheme||Compulsory for branches on non-EEA banks operating in the UK, unless they can prove they have a comparable home scheme. Voluntary for branches of EEA banks “topping up” cover.||Yes for branches of UK incorporated banks operating in the EEA.|
|Bahrain||Bahraini offices of full commercial banks||Yes, unless covered by a similar scheme elsewhere.||yes.|
|Lebanon||All banks existing and operating in Lebanon.||Yes.||Yes.|
|Morocco||“All credit institutions receiving public funds.”||No.||No.|
|Oman||Banks licensed by the central bank to accept deposits and are operating in Oman.||…||No.|
|Argentina||Commercial banks, savings banks, and credit unions, if they are supervised.2||Yes.||No.|
|Bahamas||Every licensed bank conducting business in Bahamian currency.||Yes|
|Brazil||Financial institutions, including savings and credit associations that accept deposits, but not credit cooperatives.||Yes.||No.|
|Canada||Domestic banks and subsidiaries, domestic trust and loan companies, foreign bank subsidiaries.||Yes.||No.|
|Chile||Commercial banks and savings banks of all types, but not credit cooperatives.||Yes.||No.|
|Colombia||All entities that take deposits, including banks. Finance companies, savings associations, leasing companies and investment trusts. There is a separate scheme for credit cooperatives.||Yes||No.|
|Dominican Republic||Savings and loan associations and the National Housing Bank. The draft law would extend protection to all banking institutions.||Yes.||No.|
|Ecuador||Commercial banks, savings banks and credit cooperatives that are supervised.||Yes.||Yes.|
|El Salvador||All banks, except two state-owned banks, but not credit cooperatives.||Yes, unless they are insured by the home country.||Yes.|
|Guatemala||Private domestic banks and branches of foreign banks.||Yes.|
|Honduras||Private banks, savings and loan associations.||Yes.|
|Jamaica||All financial institutions licensed to accept deposits.||Yes.||No.|
|Mexico||Full service commercial banks, but not savings or credit cooperatives.|
|Peru||All commercial banks and certain other financial institutions that are supervised and authorized to accept deposits.||Yes.||No.|
|Trinidad &Tobago||All licensed financial institutions, including commercial banks, finance houses, trust companies, and merchant banks.||Yes.||No.|
|United Scales||Commercial and savings banks are insured by the Bank Insurance Fund. (There are separate funds for savings associations and credit unions.)||No, they have to be subsidiaries.||No (except for US-banks in the Marshall Islands and Micronesia and unless the deposits are payable in the United States).|
|Venezuela||Commercial and other banks that are supervised.|
|67 Countries normally have an explicit, limited DIS*||Typically included are financial institutions licensed to take deposits.||Yes: 40 Voluntary: 8||No: 30 Yes: within the EEA and 5 other countries.|
|Has Official Backing2||Fund or Ex Post|
|Legal Priority for|
Depositors or the
Deposit Insurance System
|Kenya||X||Central bank can make loans.||Fund.||No.|
|Nigeria||X||Government (the ministry of finance and central bank) provided initial capital and can make loans.||Fund.||Mainly Nigerian T-bills.||Yes, de jure.|
|Tanzania||X||The government provided initial capital and the central bank can make loans.||Fund.||Tanzanian T-bills and loans to banks.||No.de jure, at par with other creditors.|
|Uganda||X||Government provided initial capital and will lend.||Fund.||Yes.|
|Bangladesh||X||Deposit Insurance agency finances are co-mingled within the central bank. They would be separated under pending legislation and the deposit insurer could borrow from the central bank.||Fund.||Approved, risk-free securities and investments.||Yes.|
|India||X||The central bank provided initial capital. It and government give support with Parliamentary approval.||Fund||Indian central government securities.||No. at par with unsecured creditors.|
|Japan||X||Government and central bank provided initial capital. The central bank makes loans. The government has provided substantial assistance.||Fund.||Central and local government securities and corporate bonds.||No.|
|Kazakhstan||X||The deposit insurance system can borrow from the government and the central bank.||Fund||Government securities.||Yes.|
|Korea||X||The KDIC is legally authorized to borrow from the government or central bank with ministry of finance approval.||Fund.||…||No|
|Marshall Is.||X||Fund.||US government securities||Yes.|
|Micronesia||X||Fund.||US government securities.||Yes.|
|Philippines||X||The government provided initial capital, central bank made loans and has borne losses.||Fund.||…||Yes: die PDIC has priority for insured deposits.|
|Sri Lanka||X||The central bank provided initial capital and has advanced funds.||Fund.||…||No.|
|Taiwan Province of China||X||The government provided initial capital. The central bank makes loans against collateral or a guarantee from the ministry of finance.||Fund.||Cash, securities, government bonds, and bank debentures.||No.|
|Austria||X||Government-guaranteed bonds may be issued.||Ex post||Not relevant.||Yes: for small depositors.|
|Belgium||X||The state has provided a limited temporary guarantee.||Fund.||…||No.|
|Bulgaria||X||Fund has the left to borrow, including from the government in the last resort, and to receive donations and foreign assistance.||Fund.||…||Yes, for the deposit insurer.|
|Croatia||X||The fund may borrow from the central bank.||Fund.||Short-term government and central bank securities.||Yes, for insured deposits.|
|Czech Republic||X||The central bank and the government would equally make loans to cover any shortfall in funding.||Fund.||…||No.|
|Denmark||X||The deposit insurer can borrow from banks with a guarantee from the government.||Fund.||…||No.|
|Estonia||X||The government made an initial contribution The fund can borrow without a government guarantee or ask the government to borrow a limited amount on its behalf.||Fund.||OECD-country bonds, deposits of non-member credit institutions.||No.|
|Finland||X||The government and the central bank have borne losses. The fund can borrow with a government guarantee.||Fund.||No.|
|France||X||The Government re-capitalized Credit Lyonnais outside the deposit insurance system. Both the old and the new deposit insurance systems are funded solely from private sources.||Fund beginning in 1999.||…||No.|
|Germany||X||Local governments have supported the scheme for savings institutions. Other schemes can borrow, but the law requires that compensation under the public scheme be paid from members’ annual supplementary contributions.||Fund (ex post for one private system).||…||No.|
|Gibraltar||X||None,||Ex post (fund for admin, expenses).||Not relevant.||No.|
|Greece||X||Sixty percent of the start-up funding was provided by the central bank.||Fund.||80% in members’ CDs.20% government paper.|
|Hungary||X||The government will guarantee fund borrowing from the central bank or private markets if requested.||Fund.||Hungarian government bonds, credit institution deposits.||Yes, for private persons’ deposits.|
|Iceland 5||X||No support.||Fund.||…||No.|
|Italy||X||Under the Legge Decree, the Bank of Italy can make low-interest rate loans to facilitate a large pay-out. The government has recently provided substantial financial assistance to the deposit insurance system.||Only for admin, expenses (thinking of changing).||Not relevant.||Yes: insurer has priority for insured deposits.|
|Latvia||X||The Bank of Latvia and the government made initial contributions. Compensation is paid from the government’s budget if fund resources are inadequate.||Fund.||Latvian government securities.||Yes, de jure.|
|Lithuania||X||The government provided initial capital and will cover any shortfall with loans.3||Fund.||…||Yes, for insured deposits.|
|Luxembourg||X||…||Ex post||Not relevant.||…|
|Macedonia||X||The central bank can extend credit if the fund lacks resources to pay insured depositors.||Fund.||Securities issued by the central bank.||Yes, for insured deposits.|
|Netherlands||X||The central bank provides interest-free bridge financing.||Ex post||Not relevant.||No.|
|Norway||X||Government and central bank have borne losses. The government created a Government Bank Insurance Fund to make loans to the Commercial Bank and the Savings Bank Guarantee Funds, whose resources had been depleted by the banking crisis.||Fund.||…||Yes, if the bank is under public administration.|
|Poland||X||The Bank of Poland and the government contributed initial capital.||Fund.||Assistance loans CO banks and government securities.4||Yes: the insurer has priority.|
|Portugal||X||The Bank of Portugal provided initial capital.||Fund.||Assets agreed with the central bank.||No|
|Romania||X||The fund can borrow from the state, the central bank, and other sources. The government can guarantee the debt.||Fund.||Romanian T-bills.||No|
|Slovak Republic||X||The central bank made an initial contribution and may make loans.||Fund.||…||No.|
|Spain||X||The central bank can make limited loans.||Fund.||Interest-bearing account at the National Debt Office.||No.|
|Sweden||X||The government has borne losses. The deposit insurer may borrow from the National Debt Office.||Fund.||…||No.|
|Switzerland||X||No, The Swiss Banker’s Association borrows under normal market conditions.||Ex post.||Not relevant.||Yes, for insured depositors.|
|Turkey||X||Credit may be extended by the central bank in case of insufficiency in funding.||Fund.||In banks to obtain high yields.||Yes, de jure|
|Ukraine||X||The government made an initial contribution through the National Bank of the Ukraine. The deposit insurer can borrow from the government||Fund.||Ukrainian government securities.||Yes, for the deposit insurer.|
|United Kingdom||X||The central bank made loans in the past but there is now no public funding for the deposit insurance system, but it may borrow limited amounts in the markets with Treasury approval.||Small fund (£5m to £6m) mainly ex post||Yes, the deposit insurance agency has priority in recoveries||Treasury bills for the small fund.|
|Bahrain||X||The new law would allow the deposit insurance system to borrow from the markets or the central bank.||ex post, currently.5||Not relevant.||No|
|Lebanon||X||The central bank contributed half of the deposit insurance system’s initial capital. The government matches banks’ annual contributions. If the fund is depleted the central bank replenishes it by making interest-free loans.||Fund.||Lebanese T-bills, bonds and real estate in Lebanon.||…|
|Morocco||X||No public support was used to establish the deposit insurance system and nonpublic monies are provided for in the legislation.6||Fund.||Negotiable securities of the Moroccan government.||No.|
|Oman||X||The central bank matched half of the member banks’ initial contributions; the fund can borrow from the Government, the central bank and member banks.||Fund.||Must consider; risk, liquidity, and revenue.||Yes, for the deposit insurer.|
|Argentina||X||The central bank contributed a small share of the initial capital.||Fund.||Abroad.||Yes.|
|Bahamas||X||The central bank contributed half the deposit insurance system’s initial capital.||Fund.||…||Yes: the deposit insurance system has priority for insured deposits.|
|Brazil||X||The deposit insurance system can either request funds from the central bank or authorization to borrow. Under the constitution no government support is available.||Fund.||A private decision.||No|
|Canada||X||The fund can borrow from the markets and the government, but is charged private market races.7||Fund.7||…||No, same rank as unsecured creditors.|
|Chile||No||The government is responsible for time and savings deposits and the central bank for demand deposits.||Government.||Government securities.||Yes, for insured depositors|
|Colombia||X||It is understood that the state is the ultimate guarantor.||Fund.||Colombian government securities.||No.|
|Dominican Republic||X||The government can fund the deposit insurance system for savings and loan associations.||Fund.||…||Yes, by law in 1999.|
|Ecuador||X||Until December 1999. the fund could request the central bank to provide liquidity to a bank in rehabilitation The deposit insurance system also received government bonds from the ministry of finance. However, under the dollarization scheme, no new money can be created. As the deposit insurance system has run out of cash, deposits have been frozen since March 1999, and must be repaid by government bonds.||Fund.||The deposit insurance system uses the same criteria as for investing international reserves.||Yes: same as for public deposits.|
|El Salvador||X||The central bank provided initial funding and it may also make loans to the deposit insurance system.||Fund.||Securities at home and abroad, foreign bank deposits, considering risk and liquidity|
|Guatemala||X||The government may make a temporary, exceptional contribution, which is to be repaid by the banks later.||Fund.||Foreign or domestic, non-member institutions; to consider security, profitability, liquidity, and diversification.||Yes|
|Honduras||X||The government made an initial contribution, which may be repaid over time. The central bank has a contingent credit line for the deposit insurance system; the ministry of finance may issue bonds.||Fund.||A special fund at the central bank.||No.|
|Jamaica||X||The fund can borrow in the markets or from the government and has an explicit government guarantee||Fund.||Jamaican or foreign-government securities or banks.||No.|
|Mexico||X||Fund has borrowed from the central bank and ministry of finance.||Fund.||Liquid government securities.||Yes.|
|Peru||X||The central bank and the Treasury made initial contributions. Fund may borrow from the Treasury.||Fund.||Central bank and corporate securities, including foreign currency or government securities, bonds, mutual funds, but not Peruvian finance companies-to consider: security, liquidity, profitability and diversification.||No.|
|Trinidad & Tobago||X||Central bank made an initial contribution, matches banks’ contributions, and may lend to the fund.||Fund.||Cash and the marketable securities of domestic or foreign governments.||Yes, the deposit insurance system has priority for insured deposits.|
|United States||X||Government provided initial capital, bore S&L losses, and can lend to BIF and SAIF.||Fund.||Special issue U.S. government securities.||Yes.|
|Venezuela||X||Central bank and government have borne losses and refinanced FOGADE, the deposit insurance system. The central bank may make advances.||Fund.||Securities that are liquid and profitable, equity interests.||Yes, for small deposits.|
|67 countries normally have an explicit, limited systems of deposit insurance*||66 systems have some or all private funds, one is funded by government.||Funds in 55 countries have received government assistance or can expect to obtain it. Five countries deny that support will be provided. The situation is unclear in the remaining countries.||58 systems build a fund and 9 rely mainly on ex post levies.||Typically domestic government securities.||Yes: 31. No: 30, No information:|
Country, or Province
|Fund Target as a|
Percent of Deposits
|Actual Fund as a|
Percent of Deposits
as a Percentage of
the Assessment Base
|Basis for Risk-|
Adjusting Premiums 1
|Kenya||20%of insured deposits.||5.3% insured deposits.||Deposits.||0.15|
|Tanzania||3% of total deposits.2||2.7% of total deposits.||Deposits.||0.1|
|Uganda||No.||Reported to be very low.||Deposits.||0.2|
|Bangladesh||…||0.4% of insured deposits||Deposits||0.005|
|India||No, but 2% has been proposed.||0.7% of insured deposits||Deposits.||0.05|
|Japan||No.||Currently has a deficit.||Insured deposits.||0.048 + 0.036|
|Kazakhstan||Yes T 500 million.||New scheme.||Insurable deposits.||Risk-based: 0.125 to 0.375||Formula reflecting financial condition.|
|Marshall islands||U.S. system.||U.S. system||Deposits||Risk-based: 0.00 to 0.27||Capital and CAMELS ratios|
|Micronesia||U.S. system.||U.S. system||Deposits.||Risk-based: 0.00 to 0.27||Capital and CAMELS ratios.|
|Philippines||…||22 billion pesos.||Deposits||0.2|
|Sri Lanka||…||Very low (80 mil. Rupees).||Deposits||0.15|
|Taiwan Province of China||0.5% of insured deposits.||0.3% insured deposits||Covered deposits.||Risk-based: 0.05 to 0.06 (since 1/1/2000),||9 categories reflecting CAR and rating on the early warning system.|
|Austria||…||…||Covered deposits.||pro rata, ex post.|
|Belgium||0.5% of insured deposits.||15.8 billion Belgian francs or 0.25% insured deposits.||Covered deposits.||0.02 * 0.04 if necessary.3|
|Bulgaria||Yes, 5% of total deposits.||30 million new BGL||Insurable deposits.||0.5 4|
|Croatia||5% of insured deposits.||0.85% of Insured deposits end 1998.||Insured deposits.||0.2 can be risk-adjusted.||As determined by the at central bank.|
|Czech Republic||…||…||Insured deposits.||Commercial banks: 0.5 Savings banks: 0.1|
|Denmark||Yes. DKK 3 billion.||…||Allocated as a % of covered deposits.||0.2 (max) of total deposits|
|Estonia||3% of insured deposits.||New scheme.||Deposits until 2002.||0.5% (max).|
|Finland||2% of insured deposits.||FIM 300 mil. or 0.14% of insured deposits.||Insured deposits.||Risk-based: 0.05 to 0.3. which can be increased in an emergency.||Solvency ratio.|
|France||…||New scheme.||Deposits plus 1/3 loans||Risk-based since June 1999. Previously on demand.||BS calculates the adjustment based on CAMEL-like ratings.|
|Germany||Yes, 3% of loans.||Target met.||Amount owed to customers.||0.008 in the statutory scheme 0.0 to 0.1 in the private sector.5||Risk category and length of membership in the private deposit insurance system.|
|Gibraltar||No||New scheme.||Insured deposits.||There is a small fund for administrative expenses: otherwise charges are ex post.|
|Greece||A reasonable level.||GD 81 billion at end 1999.||Deposits.6||Decreasing by size: .0025 to 125 6 Can be tripled in an emergency.|
|Hungary||Informally 1.5% insured deposits.||1 % of insured deposits.||Insurable deposits||0.19. decreasing by size to 0.16 plus risk adjustment.||Additional charge if bank falls below minimum CAR.|
|Ireland||…||…||EU and EEA, i.e., insured deposits at all branches of credit institutions in the EEA||0.2 at start. Currently no regular premium only extraordinary assessments.|
|Italy||0.4–0.8% of covered deposits: for administrative expenses.||0.4% of total deposits.||Protected funds adjusted for size and risk||Risk-adjusted charges are levied ex post to restore the funds to their required levels.||Index with 28 gradations based on risk, solvency, maturity transformation, and performance|
|Latvia||Not specified.||New scheme.||Insured deposits||0.3|
|Lithuania||For savings bank scheme.||100 million Lira or 2.5% of deposits.||Insured deposits.||1.5 falling to 1.0 in 2000.|
|Luxembourg||…||…||Insured deposits.||Ex post to a maximum of 5% of capital.|
|Macedonia||5% of insured deposits.7||3% of insured deposits.||Insured deposits.||Risk-based: l%to2.5% plus supplement, if needed.||Capital ratio and financial standing.|
|Netherlands||…||…||Case by case 8 Share of insured deposits.||Ex post to a maximum of 10% of capital.|
|Norway||1.5% deposits + 0.5% risk-adjusted assets||…||Risk-weighted assets and total deposits.||0.5 of risk-weighted assets 0.15 deposits.||Risk-weighted assets.|
|Poland||0.4 percent of deposits||1.8 % of insured deposits.||Deposits, also risk adjusted assets.9||not more than 0.4, but includes risk-adjustment.||Risk-weighted assets.|
|Portugal||…||…||Insured deposits.||Risk-based from 0.08 to 0.12 + more in emergencies.||Condition, including solvency.|
|Romania||10% of personal deposits.||1.8% of insured deposits.||Insured deposits.||Risk-based from 0.3 to 0.6.||Complex formula reflecting, capital. NPLs, profits, liquidity, and risk assets.|
|Slovak Republic||1.5% of insured deposits.||0.47% insured deposits.||Insured deposits.||0.1 to 0.3 for banks.10|
|Spain||1 % of deposits.||Insured deposits.||0.1 (Max. of 0.2)|
|Sweden||2.5% of total deposits.||…||Covered deposits.||Risk-based. 0.5 now. 0.1 later.||From 60% to 140% of base depending on CAR.|
|Switzerland||…||…||Discretion but Considering gross earnings and balance sheet items, including covered deposits.||Ex post, on demand, varies.||Based on earnings and some discretion.|
|Turkey||No.||5% of insured deposits.||Insured savings deposits.||Risk-based. 1.0 or 1.2||CAR: banks with more than 8% capital pay the lower rate.|
|Ukraine||…||10% insured deposits.||Total deposits.||0.5 plus special charges that are NOT risk-based.|
|United Kingdom||£5m-£6m for administrative expenses.||<£3m||EEA deposits i.e., insured deposits.||On demand. Not to exceed 0.3 % of guaranteed deposits|
|Lebanon||…||…||Credit accounts.||0.05 11|
|Oman||…||…||Deposits.||0.02, but can range from 0.1 to 0.3 over time.|
|Argentina||5% of total deposits.||0.1% of total deposits in December 1998.||Insurable deposits.||0.3 basic plus risk adjustment with range from 0.36 to 0.72.||Formula that includes provisions, CAR, CAMEL, and risk assets|
|Bahamas||No,||Very new scheme.||Either insured or insurable deposits.||0.05|
|Brazil||5% of guaranteed deposits||…||Total deposits.||0.3 + 0.15 as an extraordinary contribution.|
|Canada||No.||C$500m–0.19%||Covered deposits.||Risk-adjusted, 0.04 to 0.33.||A complex formula with quantitative and qualitative factors including: capital adequacy, profitability, asset concentration, regulatory rating and adherence to standards.|
|Colombia||…||11.7% of insured deposits at end 1998.13||Insured deposits.||0.3, to become risk adjusted in the year 2000.14||A premium refund, based on a rating by an independent rating agency, is pending.|
|Ecuador||50% of insured deposits.||Deposits.||0.65+ risk adjustment in the year 2000.||Risk rating to be developed by deposit insurance agency.|
|El Salvador||Deposits.||0.1. Can be raised to 0.3 to repay debt. Also there is a 50% risk-based mark-up.||If the bank has sub-standard securities or is subject to intervention or special supervision.|
|Guatemala||10% of covered deposits.||New scheme.||Covered deposits.||1.0 + 0.5 when the fund falls below its target.|
|Honduras||5% of deposits.||New scheme.||Deposits.||Not more than 0.25.|
|Jamaica||Not dejure: but there is||New scheme J$44.4||Insurable deposits.||0.1|
|an admin target of 1% of insured deposits||million in March 1999.|
|Mexico||No.||0.11% of deposits in March 1998.||Deposits and other liabilities.||0.4 plus special and risk adjustment to 0.8.||As determined by the ministry of finance.|
|Peru||…||…||Covered deposits.||Base of 0.65 plus risk adjustment15||Risk category as determined by the supervisor.|
|Trinidad and Tobago||No||TT$ 250 million in 1998.||Deposits.||0.2|
|United States||By law: 1.25% of insured deposits.||1.4% of insured deposits||Domestic deposits.||Risk-based; 0.00 to 0.27.||Capital and CAMELS ratios.16|
|Venezuela||4% of total deposits.17||Insurable deposits.||2.0 18|
|67 countries*||29 systems have a target, which ranges from 0.4% to 50% of insured deposits.||Resources range from a deficit to 10% of insured deposits.||All deposits: 27. Insured deposits: 36, including Covered deposits: 8. Non-deposit base: 2.||58 countries regularly levy premiums that range from 0,00% to 2.0%, 24 countries risk-adjust their charges.||Vanes from the relatively simple compilation of risk based assets to complex formulae for assessing risk.|
|Limited Coverage: Measured in|
Euros and/or U.S. dollars 1
|Nigeria||$140 at the market exchange rate, but $2,430 at the official exchange rate.3||X||Yes.|
|Japan||No. initially $71,000. but in full until April 2002.4||X||Yes: until April 2002.||Yes.|
|Kazakhstan||$1,420 in full, then coinsurance on a sliding scale to $7,110.||X||Yes: above the basic limit.||Yes.|
|Korea||No: initially $14,600. but in full until the year-end 2000.||X||Yes: until end 2000.||Yes.|
|Marshall Islands||$ 100,000||X||Yes.|
|Taiwan Province of China||$31,500||X||Yes.|
|Austria||€20,000 ($20,900). but coinsurance for businesses.||X||Yes: throughout for businesses.||Yes.|
|Belgium||€20,000 ($20,900) in year 2000.||X||Yes.|
|Bulgaria||95% of $1,070n, then 80% to $2,670.||X||Yes, throughout on a two tier scale.||Yes.|
|Croatia||$13,700 since July 1999.||X||Not since July 1999.||…|
|Czech Republic||90% coinsurance to $ 11,620.||X||Yes: on all covered accounts.||Yes.|
|Estonia||Co-insure 90% of $1,210, but €20,000 in 2010.||X||Yes; on all covered accounts.||Yes.|
|Germany||The official scheme offers 90% coinsurance to €20,000 ($20,900), but the deductible is covered privately The private scheme offers coverage to 30% of the bank’s capital.5||Yes: on all publicly insured accounts, but the private deposit insurance system covers the 10% deductible.||Yes,|
|Gibraltar||Lesser of 90% coinsurance or €20,000 ($20,900),||X||Yes; on all insured accounts.||Yes.|
|Ireland||Co-insure 90% to €20,000 ($20,900) in 2000.||X||X||Yes: on all insured accounts.||Yes.|
|Lithuania||$2,500 in full then coinsurance to $11,250.||X||Yes: above the basic coverage.||Yes.|
|Luxemburg||Co-insure 90% to € 15,000 ($ 15,670) through 1999, then to 90% of €20,000 ($20,900).||X||Yes: on all insured accounts.||No.|
|Macedonia||Co-insure 75% to DM 10,000 ($5,550).||X||Yes: on all insured accounts.||Yes.|
|Poland||€1,000 ($1,050) paid in zlotys then 90% coinsurance for the next €4,000 ($4,180) in 1999.€11,000 ($11,500) in 2000, rising to €20,000 in 2003.||X||Yes: above the basic coverage.||Yes.|
|Portugal||€ 15,000 or $ 15,670. coinsurance to €45,000 ($47,000), through 1999, the €20,000 ($20,900) in 2000.||X||Yes: above the basic coverage.||No.|
|Spain||€15,000 ($15,670) through 1999. Then €20,000 ($20,900)||X||No.|
|Turkey||Normally in full only on household accounts.12||X||Temporarily in full on all accounts.||No.|
|United Kingdom||Larger of 90% coinsurance to $33,333 or €22,222.||X||Yes: on all insured accounts.||Yes.|
|Bahrain||Coinsurance to $5,640.14||X||Yes: on all insured accounts.||No.|
|Oman||$52,080 or 75% coinsurance, whichever is less.||X||Yes: on larger accounts.||Yes.|
|Brazil||$17,070 (real 20,000)||X||No.|
|Chile||Demand deposits in full and 90% coinsurance to UF 120 or $3,400 for savings deposits. 16||X for total savings deposits in the system.||Only for demand deposits||On all savings deposits||No.|
|Colombia||Co-insure 75% of 10 million pesos ($7,500) and $7,500 flat on larger deposits.||X||On all insured accounts.||No.|
|Dominican Republic||Coinsurance to $12,280.||Per deposit||On all insured accounts.||Yes, in 1999 law.|
|Ecuador||UVC 500 or $3,250.||X||Yes.|
|El Salvador||$6,280 (indexed to the CPI).||X||Yes.|
|Guatemala||$2,800 17||X||Yes, if collateral or matured.|
|Jamaica||$5,000||X||X: until banking has recovered.||Yes. if in arrears.|
|Mexico||In full, except subordinated debt.400.000 UDIs ($90,000) in 2000 18||X||Yes: being phased out.||No,|
|Trinidad and Tobago||$8,000||X||Yes, on past due on loans.|
|United States||$100,000 19||X||Yes.|
|Venezuela||$ 1,580 according to the law, but payment has been 4 times higher at $6,330 20||X||No.|
|Number of Countries: 67*||67 Countries have explicitly limited coverage in normal times:||66 provide coverage per depositor: only 1 offers covers per deposit.||Full coverage is explicit in 7 of these countries.||20 countries co-insure. 15 impose a haircut on all deposits while 5 co-insure above the basic coverage limit.||Yes: 49 No: 15…:3|
|(paid in francs)||government|
|Paid in sterling||…|
|Latvia||26||Paid in local||X||X||X||X|
|Portugal||32||Paid in local||X||X||X||X||32|
|paid in sterling|
|Oman||Most43||Paid in local||X||X||X|
|Chile||48||X||X for savings|
|Honduras||53||Paid in local currency||X||X||X||X||X|
|Jamaica||Most54||Paid in local||X|
|X||X||X||X||X (All deposits|
|Trinidad & Tobago||Most 57||X||X|
|United States||All domestic58|
cover all types
of deposit; 21
9 exclude some
|Percentage of the Number of|
Deposit Accounts Covered
|Percentage of the Value|
of Deposits Covered2
|Time to Payment|
|Nigeria||78||21||Depositors have 18 months to file claims. By law, compensation is paid only when the assets of the failed bank are sold or loans repaid.|
|Japan||100||Normally 78.8 of deposits, now 100||Advance payment for immediate living expenses in one week.|
|Korea||100||in full||2 months to create eligible list, plus one|
|month to pay.|
|Philippines||Very slow because of poor deposit records.|
|Sri Lanka||Negligible||Negligible||Notice within one week, payment within 15 days of claim.|
|Croatia||95||68||Starts within 15 days.|
|Denmark||Probably almost all||less than 50||…|
|Estonia||…||1||Starts within 30 days., completed within 3 months|
|Finland||96 of the accounts||40||3 months|
|Germany||Within 21 days.|
|Hungary||97 of the accounts||48 of all deposits 69 of insurable deposits||Starts within 30 days.|
|Latvia||94.7 of natural persons’ accounts||18.7||Set in law.|
|Lithuania||98.8 of natural persons’ accounts||44 of total deposits||…|
|Macedonia||Virtually all household accounts||99 of deposits are in accounts covered by some insurance||To commence within 45 days of closure.|
|Poland||30 days to create list, 7 days for announcement.|
|Turkey||Normally of 100 of real persons’||100||2 weeks in 1994.|
|deposits, now all deposits|
|United Kingdom||70 of claimants||…||Within 3 months of the insolvency, depositor has to claim and the claim be verified.|
|Brazil||955||11 to 12||…|
|Canada||~85–90||35.9||Between 5 and 50 days in mid 1990s and also makes advance payment.|
|Chile||94 of time deposits||9 of value of time deposits||…|
|El Salvador||80% is paid within 30 days.|
|Guatemala||Between 90 and 95 by law.||10 business days.|
|Jamaica||90||33.5||No provision in the law.|
|Mexico||Temporarily 100||Temporarily 100||90 days|
|Trinidad and Tobago||96.3||34.1||To commence within 3 months.|
|United States||99 of accounts||65.2||Typically within 3 days.|
|Countries: 41||From negligible to 99,|
excluding countries offering
|From negligible to 76,|
excluding countries offering full coverage.
|From 3 days to unspecified. Typically to|
commence within 3 months.6
|Govt. Aid1||Administration||Formal Relationships||Information Sharing|
|Kenya||X||X||Independent dejure, but in practice is an integral part of the central bank. The deposit insurer works closely with the banking supervisor.||Yes, the deposit insurance agency receives on-and off-site reports.|
|Nigeria||X||X||The independent deposit insurance agency corporation has a harmonious relationship with the ministry of finance, which (together with the central bank) supervises it The central bank is also the banking supervisor. The 5-member board is appointed by the President of Nigeria and includes the governor of the central bank, the ministry of finance, plus the deposit insurance agency’s Managing and two Executive Directors.||Yes, cooperation is good The NDIC conducts on and off-site supervisor|
|Tanzania||X||X||The independent deposit insurance agency depends on the examination reports of the central bank, which acts also as the banking supervisor.||Yes: From the central bank/banking supervisor.|
|Uganda||X||X||No separate deposit insurance agency; the deposit insurance system is the responsibility of central bank, which is also banking supervisor||Yes|
|Bangladesh||X||X||The deposit insurance system is a separate legal entity, but is a part of the central bank, has the same board, and its finances are currently commingled.||Data for a deposit payout comes from the liquidator|
|India||X||X||The deposit insurance agency is a wholly owned subsidiary of central bank, of which banking supervisor is a also a part. There are NO supervisors on the deposit insurance system board.||The deposit insurer has access to bank records by law: depends on the banking supervisor for exam reports. Needs improvement.|
|Japan||X||X||The deposit insurance system is supervised by the Financial Rehabilitation Committee (FRQ and the ministry of finance.||Yes. by law, but it is problematic in practice.|
|Kazakhstan||X||X||The deposit insurance system is a separate legal entity. The central bank appoints 3 of 9 directors and the ministry of finance appoints one other.||Yes: on condition and deposits by agreement with the central bank and from members.|
|Korea||X||X||The KDIC reports to the ministry of finance and is separate from the central bank and the FSA (the banking supervisor), The 9-member board has 2 government appointees, a banker, and 4 representatives of financial institutions.||The KDIC collects the data it needs on deposits and bank condition. Also, the deposit insurance agency can require the banking supervisor to examine member banks.|
|Marshall Is.||X||As in the United States.||As in the United States,|
|Micronesia||X||There is no relationship between the local supervisors and the FDIC in the United States, which insures the banks.||There are no arrangements for sharing information.|
|Philippines||X||X||The PDIC is a separate, independent agency.||Hampered by a deposit secrecy law. Relies on the central bank and banking supervisor for exam reports.|
|Sri Lanka||X||X||The deposit insurance system is administered by the supervisor department of the central bank||Yes: no problems were reported.|
|Taiwan Province of China||X||X||The deposit insurance agency was established by the ministry of finance, but its role has grown subsequently. It has. for example, taken over responsibility for examining institutions from the ministry of finance.||Yes: the deposit insurance agency is the banking supervisor and conducts bank examinations.|
|Austria||X||X||The deposit insurance agency is a private company.|
|Belgium||X||X||The deposit insurance system is a responsibility of a separate banking supervisor that may be transferred to the central bank.||Yes: sharing is authorized.|
|Bulgaria||X||X||The deposit insurance agency is a separate legal entity, but is dependent on the central bank. Of the five-member board, one each comes from the central bank, the government and the banks, and two are independent||Yes: but the deposit insurance agency is dependent on the central bank to provide information on condition. The deposit insurance agency can demand information from member banks.|
|Croatia||X||X3||The deposit insurance agency is part of the Bank Restructuring Agency, which is independent de jure. Government officials are members of deposit insurance agency board.||Yes, informally, as needed. Members are required, by law, to provide data to the deposit insurance agency on deposits and condition|
|Czech Republic||X||X||The deposit insurance agency is a separate legal entity. Its 5 board members are appointed by the ministry of finance-one from the central bank and 2 from the banks.||No formal agreement to exchange information, but it is obtained from depositors and the central bank.|
|Denmark||X||X4||The private, independent deposit insurance agency is under the supervisor of the banking supervisor (FSA), but is located in the central bank, which provides staff.||Yes; but data come mainly from member banks and auditors.|
|Estonia||X||X||The deposit insurance agency is a separate legal entity under Public Law. It cooperates with the supervisor. Of its S-member board, 4 are appointed from the government and there is one banker.||Yes, as required by law, the central bank and member banks provide data. Information for a payout comes from the liquidator.|
|Finland||X||X||The deposit insurance agency is supervised by the banking supervisor and the ministry of finance: the central bank has no role.||Yes: the government sets the standards for cooperation.|
|France||No||X||The new deposit insurance system board is private, independent and represents its member institutions. It always has representatives from the 4 largest contributors. The banking supervisor sets the premiums.||Yes, by law but it is difficult in practice. Banking supervisor assesses risks, calculates the risk-adjustment, and passes the data to the deposit insurer.|
|The official scheme is part of banking supervisor, which determines what compensation to pay. The ministry of finance approves the by-laws and sets premiums The Bundesbank is not involved.5||The deposit insurance agency can collect info, which it must share with the banking supervisor by law. It is also obliged to consult the banking supervisor.|
|Gibraltar||No||X||The deposit insurance agency is independent dejure. The Ministry of Industry and Trade appoints the 6-member board from among the banking supervisor, auditors, lawyers, and bankers.||The banks provide data for calculating premiums: depositors and the liquidator for payouts.|
|Greece||…||X||The deposit insurance agency is a legal entity governed by private law. It is run by the Bankers’ Association, which has full decision-making powers, under the budgetary supervisor of the Minister of the Economy. Its 7-member board is appointed by the ministry of finance, the central bank and the Bankers’ Association.||Members have to report data regularly. The deposit insurance agency has NO power to inspect banks. Data come from the banking supervisor for premiums (not condition), the failed bank for payouts, and from the home supervisor for foreign branches.|
|Hungary||X||X||The deposit insurance agency is a legal entity, separate from the banking supervisor and central bank, but the State grants it limited authority. The board is appointed from the ministry of finance, central bank, banking supervisor, the CEO, and the banking industry.||Yes, by formal agreement, with the banking supervisor and from members. However, more information is needed to be commensurate with the increase in the deposit insurance agency’s responsibilities.|
|Iceland||No||The board of the banks’ deposit insurance system is appointed by the government. The system is supervised by the banking supervisor.||Data come primarily from the banks and from an informal exchange with the banking supervisor.|
|Ireland||…||X||The deposit insurance system is run by the central bank.||…|
|Italy||X||X6||The private-consortium deposit insurance system is closely knit with the BOI, which is also the banking supervisor. The BOI approves the deposit insurance system’s by-laws.||Yes, by law, but formal notification is required and the issue is sensitive as the deposit insurance system is privately run. The system also obtains data directly from member banks.|
|Latvia||X||X||The deposit insurance agency, a public institution, is overseen by the ministry of finance: de jure there is a relationship between the deposit insurance agency and the central bank. Four of the five board members are appointed by the government, the fifth comes from the bankers’ association.||No, data come from bank reports and depositors’ claims.|
|Lithuania||X||X||The deposit insurance agency, an independent state enterprise, was established by the ministry of finance: Two of its six board members come from the central bank, and two from the ministry of finance, one from the Budget Commission, and the other from the bankers’ association.||By law, information is obtained directly from the banks and from the central bank.|
|Macedonia||X||X||The deposit insurer is a private share-holding company, which is overseen by the central bank. The 7-member Supervisory Board is appointed by the Assembly and includes at least one representative of savings houses and one from the central bank. The Managing Board has three members.||Sharing is said to be inadequate as the deposit insurer is a private company. Data on deposits comes from members and on condition from the central bank.|
|Netherlands||X||X||The deposit insurance system is run by the central bank.||The deposit insurance system obtains data directly from the banks.|
|Norway||X||X7||The two deposit insurance agencies are separate legal entities, both approved by the ministry of finance. The central bank and banking supervisor are represented on the deposit insurance agency boards.||Yes: the law requires the central bank to provide requested data.|
|Poland||X||X||The deposit insurance agency is a legal entity under the ministry of finance. Three of the nine board members are appointed by the ministry of finance, three by the central bank, and three by the Bankers’ Association.||Yes: by law the central bank must supply the information the deposit insurance agency requests and it also obtains data from banks for its early detection system.|
|Portugal||X||X||The deposit insurance agency is an autonomous public legal person housed at the central bank and is under ministry of finance direction.||The deposit insurer obtains deposit and condition data directly from member banks. By law, the central bank provides technical and administrative services|
|Romania||X||X||The deposit insurance agency is independent dejure, but the central bank, which is also the banking supervisor, approves its by-laws. Of the 7-member board, three members are appointed by the central bank, and one each by the ministry of justice, the ministry of finance, and the Bankers’ Association.||Yes.|
|Slovak Republic||X||X||The deposit insurance agency is independent dejure, but is supervised by the central bank.||Yes.|
|Spain||X||X||The deposit insurance agencies have public legal status under the Bank of Spain (the central bank). Of the 8-member board, four members are appointed by the central bank and four by the banks.||Yes|
|Sweden||X||X||The small deposit insurance agency is under the Bank Support Authority and the ministry of finance: it consults with the banking supervisor and shares its premises.||Yes, but data come primarily from member institutions and the liquidator of a failed bank.|
|Switzerland||…||The deposit insurance system is run by the Swiss Bankers’Association. The Banking Commission is separate from the central bank.||Data are passed from banks to the banking supervisor, which conveys them to the deposit insurance system.|
|Turkey||X||X||The deposit insurance agency is a judicial entity under the newly independent banking supervisor.||Yes: the deposit insurance agency can request the data it needs from the parent banking supervisor.|
|Ukraine||X||X||The deposit insurance agency is an independent, state-run commercial organization, operated by the central bank, Of its five-member board, two members come from the cabinet, two from the central bank, and one is a banker.||Yes, by law and the deposit insurance agency can inspect banks. It also obtains data from the central bank and from the liquidator for a payout.|
|United Kingdom||No||8||X||The deposit insurance agency acts as a separate legal entity, but is staffed by the banking supervisor (FSA). (The central bank is now responsible only for monetary policy issues.) The board includes, ex officio, the chairman of the FSA, the head of supervisor, the Governor of the central bank and three bankers.||No, information comes from members and auditors: and for a payout, from the liquidator and depositors, who have to apply for payment.|
|Bahrain||…||X||Of the 10-member board, two members corner from the central bank, three from various ministries, one from the Chamber of Commerce, and four are commercial bankers, and the final member is the liquidator.||Data for a payout are obtained directly from the depositors of the failed bank|
|Lebanon||X||X||The deposit insurer is a cooperative, joint-stock company. Of its seven board members, three come from the government and four from the banks.||There is a bank secrecy law. Depositors submit claims to a court-appointed receivership committee, which conveys the data to the deposit insurance system.|
|Morocco||No||X||The deposit Insurance system is administered by the central bank, which is also the bank supervisor. The ministry of finance promulgates the deposit insurance system’s regulations||Nothing is stipulated in the law. but the banking supervisor and the deposit insurance system are part of the same agency|
|Oman||X||X||The deposit insurance agency is part of the central bank, but has separate accounts. The central bank can amend any rule governing the deposit insurance system at its discretion.||The central bank, which is also the banking supervisor, has the data it needs to operate the deposit insurance system. It also obtains data from banks|
|The deposit insurance agency is a private legal entity that is authorized by central bank, led by central bank representatives, and cooperates with the banking supervisor.||Yes: The deposit insurance system has to request information from the banking supervisor.|
|Bahamas||X||X||The deposit insurance agency is a separate corporation that is subordinate to the central bank and the ministry of finance.||By law. the deposit insurance system obtains data from member banks.|
|Brazil||X||X||Insurance is provided by a private, nonprofit company that is supervised by the central bank. All members of the five-member board are bank managers.||The private deposit insurance system has a problem in obtaining data on condition. Data for calculating premiums are supplied by the central bank.|
|Canada||X||X||The members of the independent deposit insurance system’s board include, ex officio, one each from the central bank and ministry of finance and two from the banking supervisor. The deposit insurance agency is accountable to Parliament through the ministry of finance.||Yes: good-facilitated by a Strategic Alliance Agreement between the CDIC and the banking supervisor.|
|Chile||X||X||There is no separate deposit insurance agency. The central bank covers demand deposits and the ministry of finance protects savings deposits. The deposit insurance system is run by the central bank, which is closely related to the banking supervisor.||Yes. there are significant exchanges of information among the central bank, banking supervisor, and ministry of finance.|
|Colombia||X||X||The deposit insurance system is owned by the government, run by the central bank, and is under the control of the ministry of finance.||The deposit insurance system plans to rely on information from an independent rating agency.|
|Dominican Republic||X||X||The deposit insurance system has its own legs 1 personality and capital, but it is subordinate to the banking supervisor The deposit insurance agency has to seek the approval of the Monetary Board to set premiums and operating rules.||The deposit insurance system obtains information from the banking supervisor.|
|Ecuador||X||X||The deposit insurance agency is an autonomous, public-law institution under the bank supervisor. The 4-member board includes one representative each from the banking supervisor, ministry of finance, central bank, and the public.||Information is obtained from the banking supervisor.|
|El Salvador||X||The deposit insurer is an autonomous public institution, subject to oversight by the banking supervisor. It consults with the central bank, banking supervisor, and ministry of finance on bank rehabilitiation. Of the five-member board, two members come from the central bank and two from healthy banks.||By law it obtains the information it needs from the central bank and banking supervisor.|
|Guatemala||X||X||The deposit insurance system is supervised by the banking supervisor. The Bank of Guatemala, the central bank, is the trustee of the deposit insurance system’s funds, and represents it before the Monetary Board.||The deposit insurance system obtains data from the banks each month to calculate premiums, and from the banking supervisor when it needs extra funds.|
|Honduras||X||X||The deposit insurance system is a decentralized entity under the central bank, but has technical administrative, and budgetary independence. Three members of its five-member board are public officials, two are private including one from the bankers’ association.||By law the banking supervisor and central bank are required to provide data requested by FOSEDE, which can also obtain data from member banks.|
|Jamaica||X||X||The deposit insurance agency is an independent statutory body that cooperates with the central bank, which is also the banking supervisor. It needs the approval of the ministry of finance. Of the seven-member board, three members come ex officio from the government; and four are appointed by the ministry of finance.||Yes, sharing is required by law. but has proved problematic in practice, because the JDIC must request on-site reports from the banking supervisor.|
|Mexico||X||X||Unlike the old insurer (FOBPROA). the new deposit insurance agency (IPAB) has legal and financial independence. Its seven-member board has a representative from the central bank, ministry of finance and banking supervisor plus four independent members nominated by the Executive and confirmed by the Senate,||Yes. by law but IPAB is dependent on the banking supervisor and the banks for data. It can also conduct examinations.|
|Peru||X||X||The deposit insurance agency is a private legal entity that is subject to regulation by the banking supervisor. Of its six board members, one member comes from the central bank, one from the banking supervisor, one from the ministry of finance, and the other three are drawn from financial institutions||The banking supervisor has the necessary information and it makes the payments, after demanding funds from the deposit insurance system.|
|Trinidad and Tobago||X||X||The deposit insurance agency is a separate, independent legal entity, but the central bank and ministry of finance set the by-laws. It is housed in the central bank.||Yes. but only at the discretion of the central bank.|
|United States||X||X||The deposit insurance agency is a separate legal entity; it cooperates with the other supervisors, and performs banking supervisor functions for some state-chartered institutions. Of its five-member board, two members are ex officio supervisors, and three represent the public. No more than three can belong to any one political party.||Yes, but disagreements leading to delays have occurred between the different agencies involved. The deposit insurance agency has back-up supervisory authority for those banks it does not supervise, but rarely uses it.|
|Venezuela||X||X9||The deposit insurance agency (FOGADE) is an autonomous legal entity that is supervised of the banking supervisor (and the ministry of finance for administrative purposes). The board has seven members: the chairman and four others are appointed by the President.||By law, the deposit insurance system obtains the examination reports of weak banks and information on deposits to calculate premiums from the banking supervisor.|
|Number of Countries: 67*||55 countries financially support their system of deposit insurance.||13 Schemes are privately run.||6 Schemes are jointly run.||39 Schemes are run by the government.||29 deposit insurance agencies are independent legal entities: 22 are under central bank: 11 are under the ministry of finance; and 10 are under the separate bank supervisor.||Agencies in 40 countries share information; 13 go directly to banks and the public. Several acknowledge deficiencies in their arrangements.|
Recent Occasional Papers of the International Monetary Fund
197. Deposit Insurance: Actual and Good Practices, by Gillian G.H. Garcia. 2000.
196. Trade and Trade Policies in Eastern and Southern Africa, by a staff team led by Arvind Subramanian, with Enrique Gelbard, Richard Harmsen, Katrin Elborgh-Woytek, and Piroska Nagy. 2000.
195. The Eastern Caribbean Currency Union—Institutions, Performance, and Policy Issues, by Frits van Beek, José Roberto Rosales, Mayra Zermeño Ruby Randall, and Jorge Shepherd. 2000.
194. Fiscal and Macroeconomic Impact of Privatization, by Jeffrey Davis, Rolando Ossowski, Thomas Richardson, and Steven Barnett. 2000.
193. Exchange Rate Regimes in an Increasingly Integrated World Economy, by Michael Mussa, Paul Masson, Alexander Swoboda, Esteban Jadresic, Paolo Mauro, and Andy Berg. 2000.
192. Macroprudential Indicators of Financial System Soundness, by a staff team led by Owen Evans, Alfredo M. Leone, Mahinder Gill, and Paul Hilbers. 2000.
191. Social Issues in IMF-Supported Programs, by Sanjeev Gupta, Louis Dicks-Mireaux, Ritha Khemani, Calvin McDonald, and Marijn Verhoeven. 2000.
190. Capital Controls: Country Experiences with Their Use and Liberalization, by Akira Ariyoshi, Karl Haber-meier, Bernard Laurens, Inci ötker-Robe, Jorge Iván Canales Kriljenko, and Andrei Kirilenko. 2000.
189. Current Account and External Sustainability in the Baltics, Russia, and Other Countries of the Former Soviet Union, by Donal McGettigan. 2000.
188. Financial Sector Crisis and Restructuring: Lessons from Asia, by Carl-Johan Lindgren, Tomás J.T, Baliño. Charles Enoch, Anne-Marie Guide, Marc Quintyn, and Leslie Teo. 1999.
187. Philippines: Toward Sustainable and Rapid Growth. Recent Developments and the Agenda Ahead, by Markus Rodlauer, Prakash Loungani, Vivek Arora, Charalambos Chrisiofidcs. Enrique G. De la Piedra, Piyabha Kongsamut, Kristina Kostial, Victoria Summers, and Athanasios Vamvakidis. 2000.
186. Anticipating Balance of Payments Crises: The Role of Early Warning Systems, by Andrew Berg, Eduardo Borensztein. Gian Maria Milesi-Ferretti, and Catherine Pattillo. 1999.
185. Oman Beyond the Oil Horizon: Policies Toward Sustainable Growth, edited by Ahsan Mansur and Volker Treichel. 1999.
184. Growth Experience in Transition Countries, 1990–98. by Oleh Havrylyshyn, Thomas Wolf, Julian Beren-gaut, Marta Castello-Branco, Ron van Rooden, and Valerie Mercer-Blackman. 1999.
183. Economic Reforms in Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, by Emine Giirgen, Harry Snoek, Jon Craig, Jimmy McHugh, Ivailo Izvorski, and Ron van Rooden. 1999.
182. Tax Reform in the Baltics, Russia, and Other Countries of the Former Soviet Union, by a Staff Team Led by Liam Ebrill and Oleh Havrylyshyn. 1999.
181. The Netherlands: Transforming a Market Economy, by C. Maxwell Watson, Bas B. Bakker, Jan Kees Martijn, and Ioannis Halikias. 1999.
180. Revenue Implications of Trade Liberalization, by Liam Ebrill, Janet Stotsky, and Reint Gropp. 1999.
179. Disinflation in Transition: 1993–97, by Carlo Cottarelli and Peter Doyle. 1999.
178. IMF-Supported Programs in Indonesia, Korea, and Thailand: A Preliminary Assessment, by Timothy Lane. Atish Ghosh, Javier Hamann, Steven Phillips, Marianne Schulze-Ghattas, and Tsidi Tsikata. 1999.
177. Perspectives on Regional Unemployment in Europe, by Paolo Mauro, Eswar Prasad, and Antonio Spilim-bergo. 1999.
176. Back to the Future: Postwar Reconstruction and Stabilization in Lebanon, edited by Sena Eken and Thomas Helbling. 1999.
175. Macroeconomic Developments in the Baltics, Russia, and Other Countries of the Former Soviet Union, 1992–97, by Luis M. Valdivieso. 1998.
174. Impact of EMU on Selected Non-European Union Countries, by R. Feldman, K. Nashashibi, R. Nord, P. Allum, D. Desruelle, K. Enders, R. Kahn, and H. Temprano-Arroyo. 1998.
173. The Baltic Countries: From Economic Stabilization to EU Accession, by Julian Berengaul, Augusto Lopez-Claros, Francoise Le Gall, Dennis Jones, Richard Stern, Ann-Margret VVestin, Effie Psalida, Pietro Garibaldi. 1998.
172. Capital Account Liberalization: Theoretical and Practical Aspects, by a staff team led by Barry Eichen-green and Michael Mussa, with Giovanni Dell’Ariccia, Enrica Detragiache, Gian Maria Milesi-Ferreiti, and Andrew Tweedie. 1998.
171. Monetary Policy in Dollarized Economies, by Tomás Baliño, Adam Bennett, and Eduardo Borensztein. 1998.
170. The West African Economic and Monetary Union: Recent Developments and Policy Issues, by a staff team led by Ernesto Hernández-Catá and comprising Christian A. François, Paul Masson, Pascal Bou-vier, Patrick Peroz, Dominique Desruelle, and Athanasios Vamvakidis. 1998.
169. Financial Sector Development in Sub-Saharan African Countries, by Hassanali Mehran, Piero Ugolini, Jean Phillipe Briffaux, George Iden, Tonny Lybek, Stephen Swaray, and Peter Hayward. 1998.
168. Exit Strategies: Policy Options for Countries Seeking Greater Exchange Rate Flexibility, by a staff team led by Barry Fichengreen and Paul Masson with Hugh Bredeukamp, Barry Johnston, Javier Hamann, Esteban Jadresic, and Inci Otker. 1998.
167. Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, edited by Peter Isard and Hamid Faruqee. 1998
166. Hedge Funds and Financial Market Dynamics, by a staff team led by Barry Eichengreen and Donald Mathieson with Bankim Chadha, Anne Jansen, Laura Kodres, and Sunil Sharma. 1998.
165. Algeria: Stabilization and Transition to the Market, by Karim Nashashibi, Patricia Alonso-Gamo, Stefania Bazzoni, Alain Féler, Nicole Laframboise, and Sebastian Paris Horvitz. 1998.
164. MULTIMOD Mark III: The Core Dynamic and Steady-State Model, by Douglas Laxton, Peter Isard, Hamid Faruqee, Eswar Prasad, and Bart Turtelboom. 1998.
163. Egypt: Beyond Stabilization. Toward a Dynamic Market Economy, by a staff team led by Howard Handy. 1998.
162. Fiscal Policy Rules, by George Kopits and Steven Symansky. 1998.
161. The Nordic Banking Crises: Pitfalls in Financial Liberalization? by Burkhard Dress and Ceyla Pazarbasioglu. 1998.
160. Fiscal Reform in Low-Income Countries: Experience Under IMF-Supported Programs, by a staff team led by George T. Abed and comprising Liam Ebrill, Sanjeev Gupta, Benedict Clements, Ronald Mc-Monran, Anthony Pellechio, Jerald Schiff, and Marijn Verhoeven. 1998.
159. Hungary: Economic Policies for Sustainable Growth, Carlo Cottarelli, Thomas Krueger, Reza Moghadam, Perry Perone, Edgardo Ruggiero, and Rachel van Elkan. 1998.
158. Transparency in Government Operations, by George Kopits and Jon Craig. 1998.
157. Central Bank Reforms in the Baltics, Russia, and the Other Countries of the Former Soviet Union, by a staff team led by Malcolm Knight and comprising Susana Almuina, John Dalton, Inci Otker, Ceyla Pazarbaşioğlu, Arne B, Petersen, Peter Quirk, Nicholas M. Roberts, Gabriel Sensenbrenner, and Jan Willem van der Vossen. 1997.
156. The ESAF at Ten Years: Economic Adjustment and Reform in Low-Income Countries, by the staff of the International Monetary Fund. 1997.
155. Fiscal Policy Issues During the Transition in Russia, by Augusto Lopez-Claros and Sergei V. Alexas-henko.1998.
154. Credibility Without Rules? Monetary Frameworks in the Post-Bretton Woods Era, by Carlo Cottarelli and Curzio Giannini. 1997.
153. Pension Regimes and Saving, by G.A. Mackenzie. Philip Gerson, and Alfredo Cuevas. 1997.
Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publication Services.
Moral hazard occurs when protection causes the beneficiaries of insurance (in the case of deposit insurance. This means depositors, bank owners, managers and supervisors, and even politicians) to be careless in their approach to bank soundness. Adverse selection occurs when only the worst risks seek to take advantage of protection, resulting in a financially nonviable system. Agency problems occur when the agent does not execute the desires/commands of his/her principal. In deposit insurance, the problem occurs principally when supervisors and regulators put the interests of the industry they regulate above those of the general population (“regulatory capture”) and when politicians interfere in the supervisor’s performance of his/her public responsibilities, often at the taxpayer’s expense.
Many in the European Union and Eastern Europe did so to conform with the European Union’s 1994 Directive on Deposit Guarantee Schemes.
The Bank Insurance Fund in die United States successfully resolved 1,394 failed banks between 1984 and 1992. The assets of these failed banks represented 10 percent of all insured bank assets in 1984 and 6.6 percent in 1992
For a definition of the term, “deposit.” and a discussion of the characteristics of depository institutions that make them candidates for protection, sec Garcia (1996). which also discusses other objectives for deposit protection, including increasing competition and promoting economic growth, that countries sometimes harbor for their insurance system.
The government in Argentina has attempted to overcome the problem of a privately run deposit insurance system setting low premiums by establishing a legal target size for the system’s fund.
An intervened bank is one that has deteriorated so far that the supervisors take control temporarily or permanently from its owners and managers.
The deposit insurance systems of Argentina in 1982 and Venezuela in 1994 did not pay insured deposits promptly. This omission had severe repercussions on depositor confidence.
While the Federal Deposit Insurance Corporation (FDIC) was successful in handling the large number of bank failures that occurred in the late 1980s and early 1990s in the United States, the Federal Savings and Loan Insurance Corporation (FSL1C) was not. It was abolished and a temporary agency, the Resolution Trust Corporation (1989–1995), was created to handle a similarly large number of failed thrift institutions.
Realistic loan valuation requires effective regulation and supervision of loan classification and provisioning.
See Benston and Kaufman 1988 for an early exposition of prompt corrective actions/SEIR.
U.S. law, for example, requires supervisors to intervene and pass the troubled bank to the FDIC, when its leverage ratio falls below 2 percent.
See, for example. The Board of Governors of the Federal Reserve 1999) and Lang and Robertson (2000).
The legal system of some countries allows losses to be imposed on subordinate debt holders without permanently closing and liquidating the banks by passing The failed bank quickly through receivership.
The Gramm-Reaeh-Bliley Act requires large U.S. banks to issue long-term, unsecured debt if these banks control a financial subsidiary.
What constitutes a bank that is “too big to fail” cannot be established universally but needs to reflect the specific features of each banking system (e.g.. the size of interbank and other large credit exposures, the number of viable surviving banks able to provide needed services, etc.) and the economy.
For example, systems of private deposit insurance in five U.S. states defaulted in the late 1980s and early 1990s and caused major distress to depositors in these regions when one of the two largest members of the deposit insurance system failed (English, 1993).
Although there may not be a large number of competitors in a contestable system, it can experience the advantages of competition. The fact that new banks can join the industry makes existing banks act competitively.
The defining characteristic of a deposit is that it has a fixed principal. See Garcia (1996) for a discussion of the characteristics Of a deposit and why offering deposits makes banks vulnerable 10 insolvency and is liquidity.
Country practices in this regard are detailed in Table A5 of the Statistical Appendix. The table reveals that it is indeed feasible to compensate a high percentage of the number of depositors and a low percentage of the value of deposits, because most deposits are small.
Some countries impose haircuts on a sliding scale, but this can violate the principle that simplicity, transparency, and public trust go hand-in-hand.
A cross-default clause, often used by payment clearing houses and interbank contracts, automatically invokes netting under specified conditions.
As, for example, in Sections 53–55 of the Bankruptcy Code Of the Netherlands and the FDIC’s Manual on Band Liquidation in the United States.
It would he counterproductive to protect a depositor with inside information who has taken out a loan just before the bank fails.
The EU Directive sets rules governing coverage from other EU countries.
The Bank Insurance Fund in the United States introduced risk-based premiums in 1992 and subsequently increased the premium range to stretch from zero basis points for the strongest banks (judged on the basis of their capital ratios and supervisory ratings) to 27 basis points for the weakest banks. It is currently considering a new system to give greater actuarial accuracy.
Under the CAMELS system, banks are rated on a scale from one to five according to a composite of the capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to systemic risk.
Nevertheless, us discussed later, some privately ran systems are operating successfully.
The central bank’s multiple role may involve it in conflicts of interest, so countries with enough resources sometimes choose to spread the roles among different agencies.
The United States found that excessive lender-of-last-resort lending had been a problem in the 1980s. It responded to this problem in legislation passed in 1991 that limited the ability of the Federal Reserve to lend to insolvent banks even against first rate collateral. See the Congressional Report accompanying the passage of the FDIC Improvement Act of 1991.
Financial sufficiency is also important and is discussed in the following section.
Some countries, such as Argentina, Germany, and Peru, have successful, privately run deposit insurance systems. Privately run systems typically have a narrow mandate. Access to financial support from the government can be especially denied in order to avoid public/private conflicts of interest.
Nevertheless, a number of countries have successful privately run deposit insurance systems that do have bankers on the board. Obtaining confidential information remains a problem to be overcome for privately run deposit insurance system, as docs providing government financial support.
U.S. congressional staff found that 90 percent of the extended credit granted by the U.S. Federal Reserve as lender of last resort went to banks that subsequently failed (U.S. House of Representatives, 1991, p, 94).
Members of parliament or people currently employed in the industry should be ineligible.
Having the deposit insurance system board report to the central bank or supervisory host is an alternative way to achieve independence, but it does so at the expense of accountability to the public.
The Bank Insurance Fund started in the United States after the banking system had been restructured by the Reconstruction Finance Corporation during the Great Depression. After accumulating a fund of $18 billion (or 1.25 percent of insured deposits) over the intervening years, the fund became illiquid, but not insolvent, in 19° I when faced by a large number of bank failures.
Ex post assessments tend to be chosen by privately financed and privately operated deposit insurance scheme.
Failure of a country’s largest banks would he a systemic failure, as discussed in Section III.
Venezuela’s deposit insurance reserves were invested heavily in insolvent banks, whereas they should have been invested in safe assets that can be easily liquidated in case of a need. This typically means investing in government securities at home or abroad Small countries, in particular, may wish to diversify by investing Fund resources in easily marketable securities> issued by foreign governments to keep the fund liquid and protect its value against high rates of inflation. Investing in foreign government securities would give some protection against foreign exchange losses in highly dollarized economic.
Funds raised in the national debt markets are monetarily neutral, which is important where bank solvency is a problem.
Central banks typically have very little capital and DO power to tax: therefore, all too frequently, the only way to cover any losses they incur is to print money. From a fiscal perspective, the accounts of the central bank and the government should be consolidated; although the budget effects of lender-of-last-resort and deposit insurance system losses are often hidden as “quasi-fiscal” losses at the central bank.
Having a currency board forced Argentina to use alternative means to support illiquid banks.
While a discussion of viable and nonviable banks is beyond the scope of this paper, a liable bank is one that has enough earning assets in relation to liabilities to be profitable enough to rebuild capital to acceptable levels over a short time (two to three-year) horizon. See Lindgren. Garcia, and Saal (1996).
Seventy-two countries had systems that were explicitly defined in law and/or regulation. Full coverage was being offered in Spring 2000 in 10 of these countries. In seven of the full-coverage cases, comprehensive coverage replaces systems that have limited scope in normal times, Six African countries that have not fully ratified their agreement to form a regional insurance system and die system in Panama are excluded from the survey because it applies the guarantee only to credit cooperatives. Russia is also excluded because of a dearth of information.
The entries in the Tables Al through A7 of the Statistical Appendix extend and update into the second quarter of 2000 the survey results presented in Garcia 1999), which were exhaustively reviewed. Every effort has been made to include new schemes in the tables and to reflect revisions that have been made to existing schemes. The author requests the reader’s forgiveness if any changes have been missed, because changes are frequent al present.
Some states within the United States began a deposit insurance system earlier, as did the former Czechoslovakia.
In addition to the revisions included in the Statistical Appendix, the United Kingdom expected to revise its system before long.
Issues relating to prompt corrective action, failure resolution, and speed of depositor compensation were not surveyed.
The sum of the numbers of compulsory and voluntary systems exceeds 67 because some countries have more than one deposit insurance system.
The voluntary system in Sri Lanka began in 1987 by charging its 13 members a premium of 0.04 percent of deposits. In 1992, the premium was raised to 0.15 percent and two banks withdrew. Only seven members currently remain.
The best known example of an insolvent insurance scheme is perhaps the Federal Savings and Loan Insurance Corporation in the United States, which practiced forbearance for a number of years with costly consequences for U.S. taxpayers.
The author is grateful to Charles Siegman for this insight.
Initially, a number of the ex post schemes were voluntary, but by the end of the twentieth century all were compulsory. All but one (Bahrain) of the nine ex post systems are located in Europe and all but two of the European ex post insurance systems (Gibraltar and Switzerland) belong to countries that arc members of the European Union. The EU Directive on Deposit Guarantee Schemes requires member countries to offer compulsory deposit insurance. Consequently, two member countries (Germany and Italy) with ex post schemes that were previously voluntary now offer compulsory systems of deposit insurance. In addition. France switched from a voluntary, ex post system to a compulsory funded scheme in mid–1999, As a result, today, both funded and ex post schemes are now typically mandatory.
Among countries granting full guarantee (Costa Rica—for state-owned banks, Ecuador, Honduras, Indonesia, Japan, Korea, Malaysia, Mexico, Thailand, and Turkey), Ecuador, Malaysia, Mexico, and Turkey had previously granted depositors priority
Countries, such as the United States, set a high level when it raised coverage in 1981 and had to wait for inflation and the growth of GDP to reduce the coverage ratio to more incentive-compatible levels. The $100,000 limit set by the United States in 1980 was virtually nine times per capita GDP at that time. It has taken 19 years to reduce the coverage ratio to the current more incentive-compatible level of three times 1999 GDP. The excessively high coverage contributed to the S’L crisis in the 1980s, (See Garcia and Plautz. 1988, pages 257—279)
If The banking industry is very weak, a deposit insurance scheme may not be feasible until it has been restructured.
By law, the Federal Deposit Insurance Corporation in the Uniteded States does not impose premiums on the highest quality banks when its fund is above Us statutory larger level of 1.25 percent of insured deposits, as it is in the year 2000.
For example, a deposit insurance scheme may have made a financial assistance loan to a very weak bank that may not be repaid but allows the bank to keep operating. The system may not have made provision for the losses expected on this loan.
The current proposal by the Basel Committee on Banking Supervision to allow supervisors to set institution-specific capital adequacy ratios would make it more difficult for the public to discover its supervisory rating.
Poland also uses risk-based assets to provide an upper bound on premiums that are, in practice, determined as a percentage of total deposits.
Each of these systems is compulsory despite the risk-adjusted premiums
Jamaica recently ended its full coverage.
The U.S. Federal Deposit Insurance Corporation (FDIC) and the Canada Deposit Insurance Corporation (CD1C) each have computer programs into which they feed a failed institution’s data to identify insured depositors and the amounts owed to them. The fewer the exclusions from coverage, the more effective are these programs. Lacking exclusions, the FDIC typically compensates depositors within three days
As discussed in footnote I. agency problems involve a lack of coincidence between the principal in a transaction and the party acting as the agent for its execution.
While the regional scheme agreed to in Africa in 1999 would be voluntary, the signatories attempted to combat adverse selection by proposing to risk adjust premiums.
€20,000 is 0.4 times per capita GDP in Luxembourg, which had the highest per capita GDP in the European L’liion in 1998, but more than twice per capita GDP in Portugal.
See Lindgren. Garcia, and Saal (1996, page 20).
Distress bidding for deposits occurs where a problem bank dial would become illiquid bids up deposit rates in order to attract funds.
The best example of this is the United States where, even after 51) years of accumulating funds, widespread failures of savings and loan associations (S’Ls) bankrupted the S’L insurance fund.
Converting deposits to equity will assist solvency. Converting short-term deposits to a longer term will help liquidity, but not solvency, unless the nominal value of deposits is also written down. See Baer and Klingebiel (1995) for examples of countries that have adopted these techniques.
See Folkens-Landau, Lindgren, and others (1998, pp. 28–30). But in crisis situations, including those that disrupt the payment system, the government will need to take some of the financial responsibility and do what it should have done before—strengthen the financial system so that it will be more able to withstand shocks and not propagate or spread them. This strengthening should include preparing concomitant reforms to minimize immediate losses in the payment system, and eliminate future losses in the banking system.
Argentina did not issue an explicit guarantee although the banking system’s deposits declined by IS percent in The early months of 1995. Some depositors lost money at this time and a few small banks were closed Nevertheless, beginning in March 1995, the authorities implicitly extended a 100 percent guarantee to bank deposits, while avoiding formal violation of the currency hoard arrangement. It did so by the central bank providing all the liquidity that banks suffering withdrawals needed, so that any depositor who wished to do so could withdraw his deposits, thus fully protecting depositors. The central bank provided liquidity by reducing reserve requirements across the board and by graining rediscounts to the largest state-owned bank, which, in turn, provided liquidity to the rest of the system.
Sweden, Finland, and Jamaica have already scaled down their coverage to that more typical of a limited deposit insurance guarantee, and the other crisis countries are preparing to do so.
Depositors and/or creditors incurred losses in Argentina in 1989–90. Brazil in 1994–96. Chile in 1982–84. Cöle d’lvoire in 1991. Estonia in 1992. Latvia in 1995. Malaysia in 1986–88. Thailand in 1983–87 and in 1997. and the United States since 1991. See “Systemic Bank Restructuring and Macroeconomic Policy” (Table 2). Moreover, depositors at some, but not all failed banks, incurred losses in the Venezuelan crisis of 1994–95.
Korea, Malaysia, and Thailand, for example, included commercial banks, finance companies, and merchant banks in their guarantees (see Lindgren and others, 2000).
Korea and Malaysia also included the overseas branches of domestic banking institutions in its guarantee. Some countries, such as Mexico and Korea, have extended coverage beyond depository institutions to insurance companies and brokerage houses, but not Korea’s investment trust companies or leasing companies. Korea excluded repurchase agreements after July 1998, however, as a beginning to phasing out its full guarantee.
In Indonesia, insider deposits were not covered by the guarantee (likewise in Thailand) unless claimants could prove that the transactions had been made at “arm’s length.”
At least in the case of Thailand, losses can be imposed only when the bank is liquidated and not if it is intervened or reorganized with new shareholders.
In Thailand, for example, foreign creditors rather than domestic depositors and creditors ran, even with a government guarantee in place, Sweden’s full guarantee was, on the other hand, successful in stemming die flight of foreign capital. In Indonesia, both domestic depositors and foreign creditors ran. Korea negotiated a separate debt agreement with its foreign creditors that imposed losses on them. Evidently the guarantee was most credible in Sweden and least credible in Indonesia. A question arises regarding the reasons for these disparities in experience. Future research may determine the reasons for the differences in credibility.
The guarantee would compensate The central bank for any resulting losses it incurs by reducing the central bank’s remission of profits to the government or by providing additional capital, if necessary.
Chile is the only country where the central bank provides a full guarantee for banks’ demand deposits in addition to limited government coverage for household savings and time deposits. The quid pro quo for this guarantee is a 100 percent marginal reserve requirement on insured deposits when they exceed 2511 percent of a bank’s capital. Thus, this scheme reduces moral hazard by limiting banks’ ability to acquire risky assets. At the margin, this arrangement approximates the concept of a narrow bank where all deposits are safely invested in government or other liquid securities
Indonesia, Japan, Korea, Mexico, and Thailand have announced that their full guarantee will be replaced by a limited system of deposit protection.
Indonesia and Thailand capped rates at margins above those paid by the best banks to prevent aggressive bidding to: deposits.
Indonesia and Thailand imposed an additional fee for The comprehensive guarantee. Members of the deposit insurance system in Japan, Korea, and Mexico continue to pay premiums to their insurance fund while benefiting from the full guarantee.
Not everyone favors replacing a full guarantee with limited deposit protection, however, Some argue that some countries have limited political capital available for dealing firmly with weak and failed banks and that what is available should be expended on isolating a small group of bank creditors (subordinated debt holders, in particular) as the only ones to stand at risk and monitor bank condition. Professor Charles Calomiris, for example, argues that, in practice, most creditors are protected, even in systems that have limited protection in place. Protection is effected by resolving failed banks by a purchase and assumption transaction that transfers all of a failed bank’s debts to the acquiring bank. Thus, protection is limited in law, but not in practice. However, lessons learned from past crises are contesting Professor Calomiris’ assertion of full protection.
Professor Edward Kane succinctly states that the time to pull the guarantee is when its present value to the banks is minimal and the authorities have put in place provisions to control the public sector’s exposure to the losses that banks incur.
Malaysia and Thailand have set no such deadlines. Mexico, Korea, and Japan have set target dates that have been, or may have to be, adjusted as the deadline approaches.
Some analysts believe that setting a (realistic) date for removal is essential to drive needed reforms, and that waiting for the right time will delay action too long.
Savings banks are guaranteed, for example, in the countries of the Commonwealth of Independent States and Sri Lanka.
The full guarantee of household savings deposits made before 1993 is still in place in Hungary, although it now applies only to a minor amount of deposits. Deposits placed after 1993 have limited coverage.