Deposit Insurance Research Articles

Legal Aspects of Deposit Guarantee: International Financial Standards and EU Law (with an Excursus on Swiss Law and Some Considerations Related to the Spring 2023 Financial Turmoil)

Legal Aspects of Deposit Guarantee: International Financial Standards and EU Law (with an Excursus on Swiss Law and Some Considerations Related to the Spring 2023 Financial Turmoil)

РЕГУЛЮВАННЯ БАНКІВСЬКОЇ ДІЯЛЬНОСТІ В УКРАЇНІ У КРИЗОВІ ПЕРІОДИ

In a market economy, banks have extremely large opportunities to influence economic processes, which necessitates the regulation of their activities. The need to regulate banking activities is especially acute during the period of crisis in the country's economy, as banking activities are characterized by a much larger set of risks, which leads to its increased financial vulnerability. The modern banking system of Ukraine has been operating in a full-scale war for more than two years, which increases the number of risks and threats to the banking sector in particular and the Ukrainian economy as a whole. An effective banking regulation system is key to the normal and stable functioning of the banking system in such conditions, as well as to a rapid post-war recovery. Despite the considerable number of works devoted to the study of various aspects of banking regulation in Ukraine in the context of the financial crisis, it should be noted that the new realities and challenges within which the banking system operates today necessitate further comprehensive research of approaches to regulating banking activities in times of crisis in the domestic financial market. The purpose of the article is to clarify the practical features of banking regulation in Ukraine in times of crisis, and also to identify the key areas for its improvement in the context of significant uncertainty and volatility of the environment. The article defines the purpose and role of banking regulation in Ukraine in times of crisis. The legal framework regulating the activities of banks is studied. The key changes made to the regulatory framework by the National Bank of Ukraine during the crisis period are characterized. Practical approaches to the regulation of banking activities in Ukraine are characterized based on the analysis of the main indicators characterizing the state of development of the banking sector in the context of crisis turning points in the history of the formation of our country, namely: during the global financial crisis of 2008–2009, the local financial crisis of 2014–2016, the economic crisis of 2020–2021 and the current crisis conditions. The article also identifies the peculiarities of banking regulation in Ukraine in times of crisis. It is emphasized that the functioning of the Deposit Guarantee Fund in Ukraine has a significant impact on the stability of the financial system due to its ability to neutralize shocks and/ or consequences of crises by preventing panic of depositors and rapid withdrawal of insolvent financial institutions from the market. The key directions for improving the regulation of banking activities in the current conditions of high uncertainty are substantiated.

Digital Banking dalam Akselerasi Pemberdayaan Ekonomi Womenpreneur Indonesia : Eksplorasi Sosial-Ekonomi dan Peran LPS Berbasis PLS-SEM

ABSTRACT Integrating technology in the digital 5.0 society, including artificial intelligence, cloud computing, and financial services, is creating a new business model: digital finance (FinTech). Indonesia's focus on economic logistics systems, FinTech development, and economic integration has positively impacted the real economy. However, digital financial innovation also brings risks, such as market uncertainty. After the pandemic, digital financial inclusion empowers women to reduce the gender gap. The history of women's economic role, such as in early Islam, highlights their success in this sector. Government measures, such as inclusive programs, show efforts to encourage women's role in the digital economy but improved financial literacy and structural support are still needed. This study aims to analyze the determinants of socio-economic conditions and the role of the Indonesian Deposit Insurance Corporation (LPS RI) in women's economic empowerment through digital banking services. This study chose a quantitative approach by conducting an online survey of 306 Indonesian womenpreneurs. The respondents' data was further analyzed using the SEM PLS analysis technique to test the proposed hypotheses. The results showed that digital banking is significant for womenpreneur empowerment in Indonesia. Financial literacy is strong, infrastructure is solid, and government support is in its favor. LPS RI protects digital banking services. recommendations including literacy campaigns, training, technology infrastructure, fiscal incentives, and government-LPS cooperation to advance womenpreneurs with financial technology.

How Did Depositors React to Bank Risks During the Covid-19 Outbreak in Indonesia?

The Covid-19 outbreak provides a unique setting to examine the association between deposits and bank risk, including loan risk, as both deposits and loan risk increased significantly during the outbreak. Employing dynamic regression models in datasets from the Indonesian banking industry before and during the Covid-19 outbreak, this study provides new evidence that depositor discipline is stronger during the outbreak, as depositors are more sensitive to loan risk. The findings are different from prior studies in that depositor discipline tends to diminish during the crisis period. Furthermore, this study confirms the effectiveness of the deposit insurance system implementation, as uninsured depositors exercise stronger discipline. Last but not least, this study documents that depositor discipline is weaker in government banks as those banks are perceived as having implicit guarantees from the government.

Pengaturan Penjaminan Polis sebagai Upaya Perlindungan Dana Masyarakat dalam Praktik Perasuransian

Claiming an insurance policy is a complex issue. Sometimes, insurance companies refuse to pay claims for various reasons and cannot pay policyholders' insurance claims. Therefore, the presence of a policy guarantee institution is essential. Article 53, paragraph (4) of the Insurance Law stipulates that the Law regarding policy guarantee programs shall be formed 3 (three) years after the legalization of the Insurance Law. However, as mandated by Article 53, the policy guarantee institution has yet to be approved. Law Number 4 of 2023 concerning Development and Strengthening of the Financial Sector Development and Strengthening of the Financial Sector or PPSK answers this problem. The Law provides a new mandate to form an institution, the Deposit Insurance Corporation (LPS). The existence of a Policy Guarantee Institution as mandated by the Law No. 40 of 2014 concerning Insurance could not be embodied. Therefore, enacting Law No. 4 of 2023 concerning the development and strengthening of the financial sector will hopefully become the answer. This Law provides the duties and authority of the Deposit Insurance Institution (LPS) to guarantee policies to protect public funds. However, to achieve the goal of the new Law, there should be good coordination between the Financial Services Authority (OJK), the financial services industry supervisory institution, and LPS, the policy guarantee institution. These two institutions should synergize with each other in protecting insurance policyholders.

Law No 4 Of 2023 Reviewed From The Perspective Of Insurance Customer Protection

Objective: This research aims to analyze the juridical consequences of the enactment of Law No. 4 of 2023 on the explicit legal Protection of insurance customers in Indonesia.
 
 Methods: This type of research is normative research. The research uses secondary data consisting of primary and secondary legal materials. The data analysis technique uses qualitative data analysis, and the conclusion drawing technique uses deductive.
 
 Result: The research results show that the PPSK Law mandates the existence of a Policy Guarantee Institution under the Deposit Insurance Corporation. The regulations in the PPSK Law relating to the Deposit Insurance and Insurance Agency provide positive juridical consequences for explicit legal Protection for insurance company customers.
 
 Conclusion: The regulations in the PPSK Law relating to the Deposit Insurance and Insurance Agency provide positive juridical consequences for explicit legal Protection for insurance company customers, relevant to the theory of legal objectives for benefit that animates the formation of the PPSK Law.

Road Ahead: Post Collapse of Punjab and Maharashtra Cooperative Bank

This case is about challenges faced by the depositors and the entire banking system following the collapse of the Punjab and Maharashtra Cooperative Bank. The Deposit Insurance and Credit Guarantee Corporation insured the bank deposits, and the earlier deposit insurance coverage was $74 million, which was increased to $370 million in the Union Budget of 2020. This increase was attributed to the collapse of the Punjab and Maharashtra Cooperative Bank, where 0.3 million people lost their money.

Diamond and Dybvig in developing economies and in a digital world

The Nobel prize-winning article of Douglas Diamond and Philip Dybvig, entitled “Bank runs, deposit insurance, and liquidity” and published by the Journal of Political Economy in 1983, has spawned a large literature, including on emerging markets and developing economies. In a nod to Diamond and Dybvig, this paper reviews this subset of the literature, which has received relatively less attention than the rest despite the greater risk of banking crises in these economies; it then examines whether the seminal article remains relevant against the rapid digital transformation of financial systems today. Models that adopted their basic ideas helped drive home the importance of maintaining sound macroeconomic fundamentals and keeping confidence levels high in bank-centered economies. Similarly applying their framework to assess the impact of the current evolution of financial systems also reveals valuable insights, such as low risk from financial technology, for now, but possible shadow banks in those settings, and allows for generally better analysis, including pointing out possible blind spots when adopting new concepts, such as central-bank-issued digital currencies.

A Component Expected Shortfall Approach to Systemic Risk: An Application in the South African Financial Industry

The accelerated growth and interconnectedness of financial institutions and movement towards products and activities outside the regulatory purview have been met with huge concerns. South Africa is one of the emerging economies that this conundrum has beset. Any potential instability in the financial sector likely poses insurmountable consequences and unprecedented government intervention, especially given that the country currently has no deposit insurance scheme. Although it is easy to justify the channels through which banks contribute to destabilising financial markets, it remains a controversial issue for insurers and other non-banking institutions. This study aims to empirically quantify the contribution of banks and insurers to aggregate the systemic risk of their respective industries by employing the component expected shortfall (CES). The CES is a robust quantitative systemic risk measure that allows for a comprehensive assessment of systemic risk by considering the contributions of individual financial components. Our findings demonstrate that the rankings from the CES framework are closely aligned with the regulatory D-SIB surcharges of the banking entities included in the study. The close alignment of both approaches is primarily due to the consideration of the size of an institution, amongst other factors.

Risk contribution to deposit insurance: Evidence from commercial and cooperative banks in the Eurozone

This paper analyses how the risk of commercial and cooperative banks may affect the European Deposit Guarantee Scheme (EDIS) to assess the appropriateness of a differentiated contribution regime. Evidence shows that these institutions have different objectives, ownership structures and operational approaches that impact their risk profile. As a result, a single regulatory approach may not be appropriate and may place an additional burden on cooperative banks. Using a simulation model and a sample of banks representing 81% of deposits in the Eurozone between 2018 and 2021, we analyse risk, deposit insurance losses and financial coverage needs. We find that cooperative banks are less risky, generate fewer losses and should provide fewer resources compared to commercial banks. These findings are important to achieve a more equitable and efficient funding policy in the future development of the EDIS as the third pillar to complete the Banking Union.

Credit Risk Management and Deposit Money Banks’ Performance in Nigeria

This study examined the relationship between credit risk management and performance of deposit money banks in Nigeria. It was mainly conceived to unravel the causes of the incessant loan delinquencies and its resultant effect on the performance of deposit money banks in Nigeria, despite the various credit policies used by the monetary authorities to curtail them. To achieve this study, data for empirical analysis were sourced from the Nigerian deposit insurance cooperation spanning from 1990 to 2020. Error Correction Mechanism was employed to estimate the various models specified. It was found among others that non-performing loans (credit risks) exert significant impact on bank performance within the period of the study, while average liquidity ratio insignificantly relates to bank performance within same period. In the light of the above findings, the researchers recommend among others that the monetary authorities should intensify their regulatory as well as their supervisory role as it concerns the reduction of the volume of bad loans granted by banking system in Nigeria. Also, that deposit money banks should adopt a workable credit policy to forestall delinquent loans.

On the issue of the development of the regulatory framework for ensuring the financial stability of the deposit insurance and pension savings system in the Russian Federation

The article examines the regulatory framework for ensuring the financial stability of the national deposit insurance system, its modern structure, highlights the problems and prospects for development. The purpose of this study is to substantiate the need to develop the regulatory framework for the functioning of the deposit insurance system, ensuring an increase in its financial stability. Based on the results of the study: the need to clarify the terminological apparatus of the application of regulatory legal acts in the field of the organization of the insurance system in connection with the inclusion of funds of non-state pension funds in the part of voluntary pension funds (2022) and formed pension rights within the funded part of the pension for compulsory pension insurance (2014) is justified; the criteria of the nature of the financial condition of financial institutions participating in the deposit insurance and pension savings system, as well as their weight values used to clarify the size of differentiated contributions for the formation of insurance funds, are proposed; the need for the introduction of regulatory monitoring of financial stability in order to form tariff requirements for participants in the deposit insurance and pension savings system – banks and non–state pension funds is substantiated.

The Crisis Management of Smaller Banks: Perspectives of Reform

660The current common framework for bank crisis management and national deposit guarantee schemes (CMDI) is tailored for banks which are considered too big (or too complex) to fail. Smaller banks are de facto excluded from the application of resolution, even though they are obliged to contribute to its functioning. In practice, not even the size element has been decisive and the crises of significant as well as less significant institutions have been managed at the national level instead of within the framework and conditions foreseen by the BRRD. The consequent and persistent fragmentation in the European financial market requires that the dichotomy between resolution and liquidation be overcome and that the scope of resolution also include smaller banks. The paper analyses the main reforms needed to achieve this goal, including the European Commission’s recent proposal to revise the CMDI.

Kajian Problematika Perkembangan Perusahaan Modal Ventura Syariah di Indonesia

This study aims to review the problematic existence and resolution of Islamic venture capital companies in Indonesia. Nowadays, along with the rapid development of the Islamic financial industry, venture capital companies are also developing with the existence of Islamic venture capital companies that apply sharia principles. Islamic venture capital companies have a market share of Muslim entrepreneurs who want to do financing in accordance with Islamic provisions. However, in practice, the Islamic venture capital industry still encounters several obstacles that require new resolutions to overcome them. This study is a literature survey. This research identifies several issues plaguing the venture capital sector. The success of the venture capital sector is still highly reliant on external factors; the Islamic venture capital sector, for example, has a business model that frequently incorporates the notion of profit sharing. The Islamic venture capital sector is risky because of poor literacy and few human resources. So that the resolutions that can be done include: Support for literacy, support for long-term access and support for establishing a deposit insurance agency (LPS).

Government guarantees and bank liquidity creation around the world

Governments provide bank guarantees, such as deposit insurance. While risk effects are well researched, impacts on bank output remain largely unexplored. We investigate bank output effects using data from 75 countries/regions on bank liquidity creation, a comprehensive bank output measure. We address reverse causality, examining home-country guarantee effects on liquidity creation by subsidiary banks in foreign host nations, and mitigate omitted-variables concerns with host country × year fixed effects and home country controls. Findings suggest home-country guarantees decrease subsidiary bank liquidity creation up to 10%, and hold prior to, during, and after the Global Financial Crisis.

Новації зміцнення стійкості банків Європейського Союзу та їх синхронізація в Україні

Introduction. The European Commission took a new step in the development of the system of financial security of banking sector and protection of the interests of depositors and creditors of banks, approving Document 52023DC0225 “On the review of the crisis management and deposit insurance framework contributing that completing the Banking Union”, which, together with the previously created regulatory framework, are extremely useful for Ukraine in order to harmonize financial legislation with the requirements of the European Union. Problem Statement. Determining the vectors of development, the system of banking regulation and supervision, guaranteeing deposits of various categories of bank` clients in the countries-members of the European Union, as well as preparing recommendations for synchronizing this experience in Ukraine. Purpose. Disclosure of modern trends in reforming the system of banking regulation and supervision, protection of bank depositors in EU countries, as well as outlining prospects for further use of this experience in Ukraine. Methods. General scientific and special methods of analysis, synthesis, grouping, description, comparison, calibration of important elements, abstract and logical, generalization are used. Results. Three pillars are defined, on which the unified system of banking regulation and supervision in the EU member states is based; the concept of “Resolution” in relation to banks is analyzed; the genesis of the EU legislation regarding banks recover and liquidation has been recreated, taking into account the innovations in 2023; a comparative analysis of the approaches of the EU and Ukraine regarding the rehabilitation/liquidation of banks and the banks deposit guarantee system is carried out; conceptual directions for the development of Ukrainian legislation in this area are proposed. Conclusions. The European Union continues to adopt measures aimed at strengthening the financial stability of the Banking Union and increasing trust in banks of all economic entities. The EU is developing a new vector of financial policy aimed at early diagnosis of bank problems, introduction of an adequate crisis management system as opposed to their preventive liquidation. The range of coverage by the deposit guarantee system is expanding not only for the population, but also for businesses, pension funds, municipalities and other bodies, while maintaining the maximum compensation amount of EUR 100,000. The introduction of this approach and other innovations in the system of guaranteeing banking financial security in Ukraine should be considered in the post-war period. At the same time, in our opinion, it would be expedient to form: a fund guaranteeing deposits of socially significant organizations and enterprises with a limit on the size of the maximum compensation; the mechanism of resolution of banks with the corresponding financing fund; the system of early replacement of the management of problem banks and the bail-in mechanism.

СПОСОБИ ВРЕГУЛЮВАННЯ НЕПЛАТОСПРОМОЖНОСТІ БАНКІВ В УКРАЇНІ

It should be noted that the problems of liquidation and resolution of banking institutions and the regulatory framework for this process remain poorly researched. The domestic practice of resolving bank is not perfect and should be harmonized with the European practice. The purpose of the research is to systematize the main ways of resolving domestic banks. The author distinguishes the components of the resolution mechanism, the form and nature of which depend on the adopted rules of regulation in a particular country. The article analyzes the resolution instruments for domestic banks. The author focuses on their main points and features. It is noted that the method of liquidation with payouts is not related to the resolution, but it is the liquidation of a banking institution with all its consequences. It is emphasized that the resolution should be based on the principle of least cost for the DGF, which is the main state resolution authority. It is recognized that the resolution of banking institutions includes the sale of business or shares in the resolution regime, the establishment of a bridge bank, purchase and assumption, and liabilities conversion. The latter instrument can be implemented with financial support from the Deposit Guarantee Fund in the form of compensation for the assumed liabilities or in the form of a loan. The author emphasizes the differences between the methods of establishing a bridge bank and the transfering assets and liabilities. The possibility of establishing a bridge bank for a period of more than one year is noted. The use of the bridge bank resolution instrument (bridge bank) helps to preserve the banking business. Proposals for improving the resolution instruments in Ukraine have been formulated.

How does deposit insurance affect household's risk sensitivity？Evidence from China

Based on the differential protection of household deposits and wealth management products in the limited deposit insurance system, this paper explores effectiveness of bank market discipline and the impact of deposit insurance on market discipline. Using the panel data of Chinese banking industry during 2010–2016, the empirical result shows that, firstly, households are sensitive to bank risks such as capital to asset ratio and non-performing loan ratio (NPL ratio) during the period 2010–2016. Thus, market discipline plays a certain role in the banking industry before introducing deposit insurance. Secondly, deposit insurance increases the risk sensitivity of banks’ wealth management products to capital to assets ratio and NPL ratio, while reducing the risk response of household deposits to these two ratios.

Stanowisko Komisji Europejskiej oraz rządów państw członkowskich Unii Europejskiej wobec reformy ustrojowej Unii Gospodarczej i Walutowej (2017-2022)

This article aims to analyse the positions of the European Commission (EC) and the governments of the EU Member States regarding the system reform of the Economic and Monetary Union (EMU). This analysis leads the author to the following conclusions. First, the EC has consistently advocated the creation of three new structures within the existing EMU by the end of 2025 (i.e. the Financial Union, the Fiscal Union and the Economic Union) and a radical extension of the powers of the EU institutions in the financial, fiscal and economic policies of the Member States. On the other hand, some EU Member State governments, notably Germany, Austria, the Netherlands, Denmark and Sweden, were opposed not only to such far-reaching system reform, but also to the pace of its implementation. All the draft laws of the EC went much further than the proposals of the Eurozone Summit or the Eurogroup in terms of system change. Thirdly, the attitude of the Eurozone Member States themselves towards the reform examined was not uniform. While the southern eurozone countries, led by France and Italy, believed that financial solidarity within the eurozone should be understood in the broadest sense, the northern eurozone countries, led by Germany, opposed it. As a result, the differences of opinion between the EU Member States were compounded by controversies between the Eurozone countries, which further complicated the process of reforming the EMU system. Fourthly, the reorientation of the stance of the governments of Germany, Austria, the Netherlands, Denmark and Sweden towards a communitisation of debt in 2020 and 2021, illustrated by the example of the Reconstruction Fund, did not pave the way for resolving the long-standing dispute over the establishment of a European deposit guarantee scheme.

The reform of the crisis management and deposit insurance framework: An overview

Abstract The Crisis Management and Deposit Insurance (CMDI) legal framework brought important benefits in terms of protecting financial stability while avoiding contagion, safeguarding the functioning of the single market, minimising recourse to taxpayers money, significantly improving depositor protection and contributing to boosting consumers’ confidence in the EU banking sector. However, according to the European Commission, it could be further improved especially with regard to smaller and medium-sized banks. This article presents an overview of the European Commission’s legislative proposals addressing those shortcomings and aimed at strengthening the CMDI legal framework, which was presented in April 2023. The core part of this reform is made up of three legislative proposals amending the Bank Recovery and Resolution Directive (Directive 2014/59/EU), the Single Resolution Mechanism Regulation (Regulation 806/2014) and the Deposit Guarantee Schemes Directive (Directive 2014/49/EU). The fourth legislative proposal, would amend the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation with regard to targeted provisions on minimum requirement for own funds and eligible liabilities.