Deposit Insurance

2019 ◽  
pp. 1-29 ◽  
Author(s):  
Sushma Nayak ◽  
Abhishek Behl ◽  
Aastha Behl
Keyword(s):  
Deposit Insurance ◽  
Institutional Environment ◽  
Banking System ◽  
Market Discipline ◽  
Regulatory Framework ◽  
Bank Runs ◽  
Indian Government ◽  
Maximum Coverage ◽  
Banking Structure ◽  
The Stability

Deposit insurance is intended for providing security to depositors from the standpoint of averting bank runs. It is crucial for nations to examine their institutional environment, banking structure, and regulatory framework before insuring deposits in the interest of maintaining market discipline. In the case of India, while Deposit Insurance and Credit Guarantee Corporation (DICGC) has been contributing appreciably to the stability of Indian banking system by safeguarding depositors against possible loss of their entitled deposits with insured banks, the system is based on “paybox” mandate and affords limited conditional protection to depositors. Guided by the need for a stronger resolution mechanism, the Indian government introduced the Financial Resolution and Deposit Insurance (FRDI) Bill in August 2017, which had its own share of controversies, conceivably the most confounded provisions being the bail-in clause and omission of explicit declaration of maximum coverage. The economic and political pressures, however, led to the dropping of the Bill in July 2018, thus creating further vacuum in an already underprovided deposit protection.

Was the Bank Holiday of 1933 Caused by a Run on the Dollar?

1987 ◽  
Vol 47 (3) ◽  
pp. 739-755 ◽  
Author(s):  
Barrie A. Wigmore
Keyword(s):  
New York ◽  
Foreign Exchange ◽  
Federal Reserve ◽  
Deposit Insurance ◽  
Banking System ◽  
Domestic Currency ◽  
New Information ◽  
The Stability ◽  
Specific Timing

International, rather than domestic, causes of both the Bank Holiday of 1933 and the calm in the banking system that followed are emphasized here. New information on gold losses by the New York Federal Reserve, rather than domestic currency hoarding, serve to explain the Bank Holiday's specific timing. Expectations that Roosevelt would devalue the dollar stimulated much of the gold loss. I also argue that Roosevelt's restrictions on gold holdings and foreign exchange dealings and his devaluation of the dollar by 60 percent were more important to the stability of the banking system after the Bank Holiday than was deposit insurance.

Bank Runs and Moral Hazard

2019 ◽  
pp. 684-706
Author(s):  
Deniz Anginer ◽  
Asli Demirgüç-Kunt
Keyword(s):  
Financial Stability ◽  
Deposit Insurance ◽  
Banking Sector ◽  
Recent Literature ◽  
Institutional Environment ◽  
Bank Runs ◽  
Costs And Benefits ◽  
Economic Costs ◽  
The Impact ◽  
Excessive Risk

Deposit insurance is a widely adopted policy to promote financial stability in the banking sector. Deposit insurance helps ensure depositor confidence in the financial system and prevents contagious bank runs, but it also comes with an unintended consequence of encouraging banks to take on excessive risk. In this chapter, we begin with a review of the economic costs and benefits associated with deposit insurance. Drawing on the recent literature, we then review and discuss optimal deposit insurance design and risk-based pricing of insurance premiums. Finally, we discuss the impact of the larger institutional environment on how well deposit insurance schemes work in practice.

scholarly journals Measurement of Systemic Risk in a Common European Union Risk-Based Deposit Insurance System: Formal Necessity or Value-Adding Process?

Risks ◽  
2018 ◽  
Vol 6 (4) ◽  
pp. 137 ◽  
Author(s):  
Aida Barkauskaite ◽  
Ausrine Lakstutiene ◽  
Justyna Witkowska
Keyword(s):  
European Union ◽  
Systemic Risk ◽  
Deposit Insurance ◽  
Current System ◽  
Banking System ◽  
Risk Indicators ◽  
Insurance Fund ◽  
Insurance System ◽  
Deposit Insurance System ◽  
The Stability

Scientific discussions have emphasized that the main problem with the current deposit insurance system is that the current system does not evaluate the risks that banks assume to calculate the deposit insurance premiums in many countries of the European Union (E.U.). Thus, the prevailing system does not safeguard a sufficient level of stability in the banking system. Scientific studies show that the deposit insurance system should consider not only the risk indicators for individual banks, but it must also consider the systemic risk of banks that affects the stability of the banking system. Hence, the question arises as to whether measurements of systemic risk in a common E.U. risk-based deposit insurance system are a formal necessity or if they are a value-adding process. Expanding the discussion of scientists, this article analyzes how contributions to insurance funds would change the banks of Lithuania following the introduction of the E.U.’s overall risk-based deposit insurance system and after taking into consideration the additional systemic risk. The research results that were obtained provide evidence that the introduction of a risk-based deposit insurance system would redistribute payments to the deposit insurance fund between banks operating in Lithuania, and, thereby, would contribute to a reduction in the negative effects of the deposit insurance system and would improve the stability in the financial system.

scholarly journals Narrow Banking from the Perspective of Risk

2019 ◽  
Vol 4 (343) ◽  
pp. 53-72
Author(s):  
Jacek Pera
Keyword(s):  
Deposit Insurance ◽  
Banking System ◽  
Financial System ◽  
Financial Sector ◽  
Risk Level ◽  
Partial Loss ◽  
Research Hypothesis ◽  
The Stability ◽  
The Cost ◽  
Size And Structure

The aim of this article is to identify risks arising from the attempt to stabilise the banking system with the use of narrow banking, which in practice means imposing restrictions on various types of assets held by banks and on handling current deposits. To this end, the following will be discussed: the nature and concepts of narrow banking and the risks of narrow banking. The research hypothesis is as follows: narrow banking is an effective concept to use to secure the stability of the financial system. The principal risk connected with the implementation of the concept of narrow banking results from: the cost of deposit insurance, partial loss of banks’ efficiency, mismatching of structures of assets and liabilities of the bank (resulting in GAP), as well as the size and structure of loans for the non‑financial sector. As a result of the conducted analysis, 6 indirect risks were identified, each for the assumed risk level: low, medium and high.

scholarly journals Do Deposit Insurance Systems Promote Banking Stability?

2021 ◽  
Vol 9 (3) ◽  
pp. 52
Author(s):  
Nafis Alam ◽  
Ganesh Sivarajah ◽  
Muhammad Ishaq Bhatti
Keyword(s):  
Financial Stability ◽  
Deposit Insurance ◽  
Global Financial Crisis ◽  
Institutional Environment ◽  
Insurance Coverage ◽  
Banking System ◽  
Insurance System ◽  
Deposit Insurance System ◽  
Banking Stability ◽  
The Impact

During the global financial crisis (GFC), regulators and policymakers turned to deposit insurers, along with monetary and fiscal measures, to help restore market confidence and promote financial stability. These events have focused attention on the role of deposit insurers and their role in the banking system. Recent literature reveals that during the GFC, deposit insurance maintained banking stability and successfully prevented customers doing ‘runs’ on the banks. The objective of this paper is to examine the deposit insurance system’s coverage limits and the impact on banking stability, in the context of a jurisdiction’s economic and institutional environment. Our model examines 61 jurisdictions in Asia and Europe with explicit deposit insurance systems, covering the pre- and post-GFC period between 2004 and 2014. We also examine subsets to investigate the effects of the region by comparing Asia and Europe, as well as a subset using the date of establishment of the deposit insurance system to understand if maturity matters. The results indicate that deposit insurance systems, and specifically deposit insurance coverage levels, have both positive and negative effects on banking stability. We find significant associations with certain economic and institutional factors; however, there are differences between the models we ran. These can be ascribed to regional factors and the date of when a deposit insurance system was established.

scholarly journals Deposit insurance system as a guarantee of depositor’s protection

2021 ◽  
Vol 12 (1) ◽  
Author(s):  
Olena Sova ◽  
◽  
Nataliia Poliakova ◽  
Keyword(s):  
Financial Stability ◽  
Deposit Insurance ◽  
Banking System ◽  
Well Being ◽  
The State ◽  
Household Savings ◽  
Negative Effects ◽  
Guarantee System ◽  
European Standards ◽  
The Stability

The article examines the state and trends in the development of the deposit guarantee system for individuals in Ukraine. The challenges and needs of improving the mechanism of centralized insurance protection of depositors are identified. The authors emphasize the growing role of the Deposit Guarantee Fund of individuals in the banking market and expanding the scope of its modern mechanisms to reduce the negative effects of bank bankruptcy, which is an important factor in ensuring the stability of the banking system. Emphasis is placed on considering the disposable income of domestic households, as this indicator is an eloquent indicator of improving the country’s economic well-being. Parallels were made in the analysis of quantitative indicators of state social guarantees, namely: the expression of the living wage and the amount of the minimum wage for 2016-2020. The size of the household savings growing is estimated. The importance of converting household savings into investments for economic development is determined and the number of deposits and the value of deposits for households in 2016-2020 are analyzed. The authors also illustrate the dynamics of changes in the UIRD indicator. The deposit guarantee system is presented as an important factor in the financial stability of the state economy. The article emphasizes the successful steps of legislative regulation of the subject composition of the Deposit Guarantee Fund of Ukraine and reformation of compensation limits, which brings the domestic insurance field closer to European standards of depositor’s protection. According to the results of attracting deposits from the top-9 commercial banks of Ukraine, tables have been formed, the data in which allow making conclusions about the leaders of the deposit services market and the amount of potential reimbursement. Proposals have been formulated to improve the deposit guarantee system, aimed at optimizing insurance schemes and relations in accordance with the threats to financial security as an objective phenomenon of a market economy and the conditions of globalization.

scholarly journals DETERMINAN BANK RUNS PADA KRISIS PERBANKAN 1997/1998: SUATU KAJIAN DENGAN MENGGUNAKAN PANEL DATA DINAMIS

2007 ◽  
Vol 9 (2) ◽  
Author(s):  
Iskandar Simorangkir
Keyword(s):  
Panel Data ◽  
Deposit Insurance ◽  
Banking Sector ◽  
Banking System ◽  
Safety Net ◽  
Dynamic Panel Data ◽  
Bank Runs ◽  
Dynamic Panel ◽  
Explanatory Variables ◽  
Economic Fundamentals

There are two main competing theories to explain bank runs. One argues that panics come primarily from lack of confidence on banking sector, originated for example, in the bankruptcy of a big bank. According to this argument, lack of confidence and asymmetric information problems from depositors would induce contagious or self-fulfiling prophecy of bank runs. The other argues that banking crises are part of a cycle that effects both the financial and real sector of the economy. In other words, bank runs is determined by bank fundamentals and economic fundamentals.Using monthly panel data information on Indonesian banks this paper attemps to explain bank runs during the 1997/1998 financial crises. This papaer uses the variation of deposits as proxy for bank runs and the variables related to solvency theory and general economic condition as explanatory variables for bank fundamentals and economic fundamentals, respectively. To catch the contagion or self-fulfiling prophecy determinant of bank runs, I use dynamic panel data by imposing lag of deposit variations. The results shows that the impetus of bank runs during the crisis of 1997/1998 were the combination of contagion and bank fundamentals. However, economic fundamentals did not exert significant impact on bank runs. The finding suggest that the role of financial safety net, such as deposit insurance would be very important to keep depositors’ trust on Indonesian banking system, rather than preventing bank runs in the future.Keywords: Markow, bank runs, dynamic panel, IndonesiaJEL Classification: C33, E58, G21

NPLs — The Solution Recipe for Albania

2015 ◽  
Vol 3 (1) ◽  
pp. 48
Author(s):  
Elona Shehu ◽  
Elona Meka
Keyword(s):  
Interest Rate ◽  
Negative Relationship ◽  
Banking System ◽  
Gdp Growth ◽  
System A ◽  
Analysis Technique ◽  
Recent Financial Crisis ◽  
The Stability ◽  
Asset Quality ◽  
Macroeconomic Determinants

The quality of the loan portfolio in Albanian banking system is facing many obstacles during the last decade. In this paper we look at possible determinants of assets quality. During the recent financial crisis commercial banks were confronted with deteriorating asset quality that threatened not only the banking industry, but also the stability of the entire financial system. This study aims to examine the correlation between non-performing loans and the macroeconomic determinants in Albania during the last decade. NPLs are considered to be of a high importance as they represent the high risk exposure of banking system. A solid bank with healthy assets increases the market efficiency. Our approach is based on a panel data regression analysis technique from 2005-2015. Within this methodology this study finds robust evidence on the existing relationship between lending interest rate, real GDP growth and NPLs. We expect to find a negative relationship between lending interest rate and asset quality. Further we assume an inverse relationship between GDP growth and non-performing loans, suggesting that NPLs decrease if the economy is growing. Furthermore this study proposes a solution platform, which looks deeper into the possibility of creating a secondary active market for troubled loans, restructuring the banking system or implementing the Podgorica model. This research paper opens a new lieu of discussion in terms of academic debates and decision-making policies.

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