- G. Garcia
- Published Date:
- January 2000
© 2000 International Monetary Fund
Production: IMF Graphics Section
Figures: Sanaa Elaroussi
Typesetting: Choon Lee
Library of Congress Cataloging-in-Publication Data
Garcia, G. G.
Deposit insurance : actual and good practices / Gillian G. H. Garcia.
p. cm.—(Occasional paper; 197)
Includeds bibliographical references.
1. Deposit Insurance. I. Title. II. Occasional paper (International Monetary Fund); no. 197.
HG1662.A3 G37 2000
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The following symbols have been used throughout this paper:
… to indicate that data are not available;
n.a. to indicate not applicable;
— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
– between years or months (i.e., 1997–98 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years or months (i.e., 1997/98) to indicate a crop or fiscal (financial) year.
“Billion” means a thousand million; “trillion” means a thousand billion.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
This paper is the culmination of several years of work by the IMF on deposit insurance—a subject that has grown increasingly important in recent years. During the 1980s and early 1990s, the IMF staff, including McCarthy (1980), Galbis (1988), Fries (1990), Fries and Peraudin (1991), and Garcia (1996), examined the analytical underpinning of deposit protection. With the emergence of the transition economies in Central and Eastern Europe, the IMF focused on the introduction of deposit insurance in countries with diverse financial structures and different macroeconomic conditions. Requests from the transition countries prompted a search for good practices. In response, the IMF conducted a series of surveys of country practices, which were shared with all members of the IMF. Notable among these studies were Kyei (1995) and Lindgren and Garcia (1996).
During the mid- and late 1990s, a number of countries considered introducing deposit protection systems as a means of stabilizing their banking systems and protecting depositors from loss, and they sought advice from the IMF in this effort. The IMF generally has cautioned countries about such moves, arguing that appropriate political, institutional, and economic preconditions needed to be in place before deposit protection could be effective.
Given the continued requests from members for advice on depositor protection, IMF management called for the development of operational definitions of best practices on depositor protection to ensure that the IMF staff were providing consistent advice. This led to the 1996 operational paper, “Deposit Insurance and Crisis Management” by Carl-Johan Lindgren and Gillian Garcia. The paper was updated for presentation at the International Conference on Deposit Insurance arranged by the United States Federal Deposit Insurance Corporation in September 1998. This conference marked the first time deposit insurers from around the world convened to exchange views and experiences. The search for improved policies, standards, and practices led to the formation of a Study Group on Deposit Insurance under the auspices of the Financial Stability Forum (FSF). The study group recently issued its report and the search for an international consensus on deposit insurance designs and practices will be continued by a working group. The IMF is participating in this work of the stability forum.
The IMF staff has gained substantial experience regarding the benefits and pitfalls of deposit insurance systems and the preconditions for their success. Recent financial crises have also shown their limitations. The experiences of IMF staff in designing effective and incentive-compatible systems of deposit protection, and in the role of limited or full guarantees in resolving financial crises, are summarized in this Occasional Paper, which we hope will make a contribution to the international debate on the subject.
The author thanks Stanley Fischer, V. Sundararajan, Carl-Johan Lindgren, Charles Enoch. David Hoelscher, Michael Taylor, and participants in seminars sponsored by the IMF’s Monetary and Exchange Affairs Department for insightful comments; country authorities and staff from the IMF and the World Bank who have responded to her inquiries; Elena Budreckaite for expert research assistance; and the staff assistants, particularly Funke Orimoloye, Lidia Tokuda, and Constanze Schulz-Calle La Rosa, who have typed and retyped this material. The work has benefited from the editorial expertise of Jeff Hayden of the External Relations Department, who also coordinated its publication.