Deposit Insurance and Crisis Management
March 1, 2000
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Summary
A well-designed deposit insurance system (DIS) will provide incentives for citizens to keep the financial system sound. However, a poorly designed DIS can foster a financial crisis. This paper, therefore, makes recommendations for creating and running a limited, incentive-compatible, DIS. The paper also examines factors in the decision to grant, temporarily, a comprehensive guarantee, and the design of that guarantee, should a systemic financial crisis nevertheless occur. It concludes with guidance on the removal of that guarantee.
Subject: Bank deposits, Bank resolution, Banking, Commercial banks, Deposit insurance, Distressed institutions, Financial crises, Financial institutions, Financial sector policy and analysis, Financial services, Moral hazard
Keywords: adverse selection, Bank deposits, bank loss, Bank resolution, banking industry, banking system, Commercial banks, comprehensive guarantee, Deposit insurance, failed bank, financial backing, financial system, flight to quality, franchise value, full guarantee, Global, insurance fund, Moral hazard, problem bank, subordinated debt-holder, unguaranteed credit rating, WP
Pages:
80
Volume:
2000
DOI:
Issue:
057
Series:
Working Paper No. 2000/057
Stock No:
WPIEA0572000
ISBN:
9781451847765
ISSN:
1018-5941
