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Sibling Rivalry in the Financial Safety Net: Governance Arrangements for Bank Resolution and Deposit Insurance

February 10, 2025
The technical note and manual "Sibling Rivalry in the Financial Safety Net," authored by Atilla Arda and Jan Nolte, examines the governance structures essential critical for effective bank resolution and deposit insurance functions. Considering the vulnerabilities exposed during the 2008-09 global financial crisis, the note emphasizes the interconnectedness of these two critical functions, both of which aim to safeguard depositors and maintain financial stability. The authors discuss various institutional arrangements, highlighting the choice between integrating both functions within existing agencies or establishing new entities. The note then identifies potential conflicts of interest among resolution authorities, deposit insurance systems, other safety net participants such as central banks and supervisory agencies, and the financial sector. These potential conflicts underscore the necessity of robust governance frameworks to address these challenges and ensure autonomy, operational independence, and accountability of the two functions. The note emphasizes the need for strong legal protections for individuals in charge of resolution and deposit insurance, ensuring they can take decisive actions during crises. By exploring best practices and case studies, including Denmark's integrated framework, the authors provide valuable insights into optimizing institutional and governance arrangements by integrating the deposit insurance function within the resolution authority. This could support effective cooperation among authorities which is vital for creating resilient financial safety nets.

Republic of Korea: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Korea

February 7, 2025
The Korean economy has remained resilient against multiple shocks. Economic growth has recovered, inflation has steadily declined, and financial stability risks have decreased. However, downside risks have increased amid high uncertainty from policy shifts in major trading partners and recent domestic political developments. Key medium-term challenges are to boost the growth potential amidst rapid population aging, and to adapt to shifting trade patterns, transformative technological change, and climate vulnerabilities.

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