Explicit deposit insurance (DI) is widely held to be a crucial element of modern financial safety nets. For this reason, establishing a DI system is frequently recommended by outside experts to countries undergoing reform. Predictably, DI systems have proliferated in the developing world. The number of countries offering explicit deposit guarantees rose from twenty in 1980 to eighty-seven by the end of 2003. This book challenges the wisdom of encouraging countries to adopt DI without first repairing observable weaknesses in their institutional environment. The evidence and analysis presented confirm that many countries would do well to delay the installation of a DI system. Analysis shows that many existing DI systems are not adequately designed to control possible DI-induced risk taking by financial institutions, and the book provides advice on principles of good design for those countries in the process of adopting or reforming their DI systems.
Empirical evidence on the efficiency of real-world DI systems has been scarce, and analysis has focused on the experience of developed countries. The contributors to this book draw on an original cross-country dataset on DI systems and design features to examine the impact of DI on banking behavior and assess the policy complications that emerge in developing countries. Chapters covers decisions about DI adoption, design, and pricing, and review individual country experiences with DI—including issues raised by the EU's DI directive, banking reform in Russia, and policy efforts to protect depositors in China. Recent bank runs on loss-making banks in Germany and the United Kingdom have pushed the issues of DI systems back to the center of debates on regulatory policy in both developing and industrialized countries. The guiding principles identified in this book can contribute powerfully to that debate.
Contributors: Thorsten Beck, Modibo K. Camara, Aslı Demirgüç-Kunt, Kalina Dimitrova, Stephen Haber, Patrick Honohan, Harry Huizinga, Edward Kane, Baybars Karacaovali, Randall Kroszner, Luc Laeven, William Melick, Fernando Montes-Negret, Nikolay Nenovsky.
About the Editors
Asli Demirgüç-Kunt is Director of Development Policy in the World Bank’s Development Economics Vice Presidency and Chief Economist of the Financial and Private Sector Development Network (FPD). She is the coeditor of Financial Structures and Economic Growth: A Cross-Country Comparison of Banks, Markets, and Development (MIT Press, 2001).
Edward J. Kane is James F. Cleary Professor in Finance at Boston College.
Luc Laeven is Senior Economist at the World Bank.
"This book does it all on deposit insurance: a clear conceptual framework, new cross-country data and analyses, and insightful country studies from history and around the world. Anyone working on financial sector policy issues must read this innovative, well-written book. It truly pushes the frontiers."
—Ross Levine, James and Merryl Tisch Professor of Economics, and Director, William R. Rhodes Center in International Economics, Brown University
"Deposit Insurance around the World provides new evidence that will help inform deposit insurance policies going forward, and distills overarching lessons from previous experience into several principles that should guide deposit insurance design. The evidence and lessons are culled from a broad range of experiences and across many countries. The result is a fact-filled, informative, and convincing exploration of the recent wave of deposit insurance adoption in developing countries and their costs. A must-read for anyone seriously engaged in research or regulatory policy relating to banks in emerging market countries."
—Charles Calomiris, Henry Kaufman Professor of Financial Institutions in the Faculty of Business, Columbia Business School
"The contributors to this book collectively provide a comprehensivesurvey of deposit insurance programs across the globe. These authorsconvincingly demonstrate that "deposit insurance" is neither a uniformproduct nor necessarily a positive influence on a country's financialsector. The effects of deposit insurance depend crucially on theassociated financial and political institutions. Policymakers andfinancial professionals will find this book extremely informative; theyshould heed its warnings about the impact of introducing new depositinsurance systems."
—Mark Flannery, Department of Finance, Graduate School of BusinessAdministration, University of Florida