Measures to promote effective interrelationships among financial safety net participants

Abstract

The principal objectives of a deposit insurance system are to contribute to the stability of a country's financial system and to protect less financially sophisticated depositors from the loss of their deposits when banks fail. In designing deposit insurance systems, policymakers should address the deposit insurer's relationships and coordination with other safety net participants. A need for close coordination and information sharing exists in any institutional setting. But when more than one organisation is responsible for the smooth functioning of the financial safety net, it could be said that ‘Good Fences Make Good Neighbors’ as the functions assigned to different organisations raise issues related to the allocation of powers and responsibilities, information sharing and the coordination mechanism. In this regard, the aim of this paper is to examine ways to promote more effective interrelationships among safety net participants that will contribute to financial stability.