Instituting a deposit insurance system: Why? How?

Abstract

The number of countries either establishing or considering establishing a deposit insurance system has expanded rapidly in recent years. By 2005, 78 countries had instituted some form of an explicit deposit guarantee programme. In establishing a deposit insurance programme, each country must consider what it hopes to achieve and whether the system that is established is internally consistent with its goal(s). Circumstances unique to the country will have a significant bearing on what a deposit insurance system can achieve and how the system should be structured. This article discusses these issues and provides a series of questions designed to help evaluate the strengths and weaknesses of deposit insurance systems. Emphasis is placed on whether the design features are internally consistent and compatible with the goals of the deposit insurance system.