02 October 2008

OECD: Financial crisis and deposit insurance guarantees

The article provides a brief overview of some of the key challenges related to the design of explicit deposit insurance systems. These challenges include issues related to coverage, funding and premium setting, membership, safety net interrelations, and bank failure resolution mechanisms. In addition, the note identifies some preliminary findings that could be drawn from the recent financial turmoil.

The article singles out four areas for special attention.

• First, deposit insurance systems with low levels of coverage and/or partial insurance may not be effective in preventing bank runs.
• Second, depositors need to understand the extent of and limits to existing deposit protection schemes.
• Third, ex ante arrangements delimiting the scope of the different responsibilities as well as the respective powers may not be sufficient to ensure co-ordination that is as close and smooth as needed.
• Fourth, the question as to whether a specific bankruptcy regime for banks is needed remains an important issue.

Article

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