The Design and Implementation of Deposit Insurance Systems

Occasional Papers, December 7, 2006

Source details

Title: The Design and Implementation of Deposit Insurance Systems
Authors: David S. Hoelscher, Michael W Taylor, Ulrich H Klueh
Publication date: December 7, 2006
Summary:
- Describes recently established deposit insurance systems and identifies emerging trends.
- Argues against the development of "best practices" applicable to all systems.
- Stresses the importance of incorporating each country’s individual objectives and characteristics when adopting a deposit insurance system to ensure effectiveness and to minimize disincentives and distortions to financial sector intermediation.
- Includes a summary of the academic literature.

Emerging trends in recently established deposit insurance systems are identified and described.
One-size-fits-all "best practices" approaches are rejected in favor of country-specific design.
Emphasis on aligning deposit insurance design with:
- Each country’s individual objectives.
- Country characteristics to reduce disincentives and distortions to financial sector intermediation.
The paper reviews and summarizes relevant academic literature on deposit insurance.

Design choices for deposit insurance systems should be guided by country-specific objectives rather than universal "best practices".
Policymakers should consider how system features interact with national financial sector structures to minimize moral hazard and other distortions.
Adoption of deposit insurance systems should account for:
- The objectives prioritized by the jurisdiction.
- Characteristics of the domestic banking and financial system.