Deposit Insurance System Research Articles

Advocacy coalitions and the lack of deposit insurance in Banking Union

This paper shows that advocacy coalitions surrounding the establishment of a European Deposit Insurance System lead to spillovers into incompatible areas. Alternative spillovers were to increased public backstops and state aid. Intent to minimize costs, Germany and the Netherlands have pushed for wide-ranging risk reduction measures: that go to the core of financial practices in southern Europe, while Italy has pushed for greater public backstops and state aid within EMU. Unable to break the deadlock in Council, the EU awaits Basel Committee guidance on how to deal with sovereign risk exposures in its 2017–2018 work program.

Information Disclosure, Deposit Insurance System and Systemic Risks of Banks

Based on an incomplete information dynamic game model, this paper theoretically analyzes the effects of information disclosure and deposit insurance system on systemic risks, and then makes an empirical test by using a panel data of 137 listed commercial banks in 24 countries from 2006 to 2014. It arrives at the following conclusions:firstly, the increase in information disclosure degree in banks helps to reduce financing costs and deposit insurance premiums, leads to the decrease in the correlation between assets of banks, and thereby reduces the systemic risks; secondly, financial stability effects of deposit insurance are not obvious, and the increase in information disclosure degree effectively relieves the moral hazard of deposit insurance system; there is synergistic effect between information disclosure degree and deposit insurance system in the aspect of the reduction in systemic risks. A design of reasonable deposit insurance system, experienced supervision authorities and strict supervision system help to play the restriction role of the market, impose restrictions on the moral hazard of deposit insurance, and thereby maintain the stability of financial system. Therefore, under the background of formal implementation of deposit insurance system, supervision authorities should strengthen information disclosure of banks and optimize the design of deposit insurance to better guard against systemic risks of financial system in China.

Banking union: the disadvantages of opportunism

The EU’s approach to what it describes as “banking union” is not what one would design with a clean slate. It reflects the political constraints and the path of history. This paper compares the institutional and operational structure of “banking union” that has been decided upon with a complete structure. It focuses on the distortions caused by a system based on the euro area, which excludes Europe’s most important financial market. It considers the difficulties posed for the Single Resolution arrangements and the European Deposit Insurance System by the continuing problem of the relation between weak banks and over-indebted sovereigns.

Pricing Deposit Insurance and Assessing Moral Hazard Behavior: Evidence from Banking Sector in Sudan

The purpose of this paper to evaluate the cost of deposit insurance premium and assess moral hazard behavior in the banking sector in Sudan. The analysis of moral hazard in this paper is based on two types of risks, credit risk, and technical efficiency risk (managerial efficiency). The findings of the paper indicates credit risk is positively associated with deposit insurance coverage, and technical efficiency performance is negatively associated with deposit insurance coverage. Also indicated that banks whose risk-based insurance premium is less than the fixed rate insurance premium (over-priced) are those banks with pure technical efficiency performance. These results imply when banks characterized with managerial inefficiency deposit insurance system can incite moral hazard behavior. Additional finding of the paper includes when banking sector is classified into homogenous groups (national, foreign, and mixed ownership) risk-based average deposit insurance premium is close estimate to the average credit default risk for each group.

Evropský systém pojištění vkladů a řešení krizí bank: příležitost k rozšíření jednotného mechanismu pro řešení krizí

The aim of this paper is to analyse the potential design and competences of a European Deposit Insurance System, which would extend the operation of the existing Single Resolution Mechanism. The analysis also builds on the design of the Federal Deposit Insurance Corporation (FDIC) operating in the US, which is endowed with both resolution and deposit insurance competences. I argue that the Single Resolution Fund (SRF) could be transformed into a Single Resolution and Deposit Insurance Fund (SRDIF) whose capacity would be increased to 1.8% of insured deposits. SRDIF resources would be available both for bank resolution and deposit pay-outs. The main elements of the financing arrangements for the SRDIF would include risk-weighted ex-ante contributions from the banking sector and a public backstop created through a transformed ESM. Given the legal constraints derived from the so-called Meroni ruling, the discretionary decision making of an institution managing the SRDIF would have to involve the Commission and the Council as is the case of the existing Single Resolution Board (SRB). In order to mitigate the adverse selection issue, mutualisation of resources in the SRDIF would have to be gradual over a transition period of six years until 2024. A sufficient reduction of risks across national banking sectors in the EU/ Eurozone Member States would have to be achieved in the transition period.

A study about deposit insurance relationship and bankruptcy process of financial institution under the deposit insurance act

예금보험제도는보험이라는명칭을사용하고있기때문에, 보험계약자인부보금융기관은 해당 보험료를 지급해야 하며 보험사고 시 보험자 지위에 있는 예금보험공사(이하 ‘예보’라한다)는보험금지급의무를부담하게된다. 그러나예금보험은국민경제적인입장에서 국가의 정책수행을 위하여 운영되는 경제정책보험으로서 공공보험에 해당한다. 일반 민영보험과는 달리, 예금보험제도는 보험의 원리인 대수의 법칙이라든가 수지상등의 원칙이 민영보험의 영역과 동일하게 적용될 수 없다. 예금보험은 금융기관이 납부하는 보험료를 재원으로 하여 예금보험기금으로 적립한 후 금융기관이 경영부실 등의 사유로 인하여 예금자의 예금인출요구에 응할 수 없는 경우 예금보험기구가 사고 금융기관을 대신하여 예금자에게 일정한예금을보험금으로지급하게된다. 그렇게본다면, 예금보험은손해보험의성격을 가지고있고, 보험계약자와피보험자가서로다르다는점에서, 타인을위한손해보험계약일종으로 볼 수 있다. 특히 예금보험에서 보험사고는 독립적인 사고로 발생하는 것이 아니라 연쇄적인 경향을 가지고 있다는 점 역시 다른 보험과 차이가 있다. 부보금융기관의 보험자 지위를 가지고 있는 예보는 부실금융기관 파산선고 시 파산관재인으로 선임되어 해당 파산업무를 효율적이면서 신속하게 진행하여긍정적인 평가를 받았다. 약15년간의 예보의 효율적인 재단운영 및 배당 극대화 노력 및 청ㆍ파산제도에 대한 예보의 공헌은 높이 평가할만 한 것이다. 본연구는예보와부보금융기관간법정보험관계를중심으로예금보험의주요내용을검토한다. 동시에사보험의보험자지위에있는예보가담당하는핵심적인논점및파산절차에서 발생하는 법적 쟁점 등을 다루고 있다, 파산관재업무와 관련하여, 파산재단을 운영하고 관리하면서 기여한 예보의 역할 및 그 성과는 인정받을 만한 것이었다. 그럼에도 불구하고 예보의 법적 지위에 대한 다툼이 언제나 상존하고, 금융기관의 부실에 대한 예금지급이라는 전통적인 기능에 한정되는 예보가 아닌, 금융기관의 리스크를 관리하는 보다 적극적인 예보 의 기능이 요구되고 있으며, 기능별 예금체계의 도입과 예금자보호를 위하여 예금보험의 대상범위가 보다 더 확대될 필요가 있다.Since the deposit insurance system uses the name of insurance, the financial institution that is an insurance contractor has to pay the insurance premiums, and the Korea Deposit Insurance Corporation (hereinafter referred to as ‘KDIC’), which is in the status of insurer at the time of occurring an insured accident, shall be obliged to pay the sum insured. However, deposit insurance corresponds to public insurance as an economic policy insurance that is operated for national policy in the national economic aspect. Unlike general private insurance, the deposit insurance system can not be applied in the same way with the principle of the insurance or the principle of the algebraic law within it. Deposit insurance, after depositing premiums paid by financial institutions as a deposit insurance fund, if a financial institution can not comply with a deposit withdrawal request from a depositor due to reasons such as insolvency, will pay certain deposits as benefits to depositors on behalf of the accrued financial institutions. In that point of view, deposit insurance has the nature of non-life insurance, and in the point that the policyholder and the insured are different, it can be regarded as a type of non-life insurance contract for others. In particular in the case of deposit insurance, the fact that an insurance accident does not occur as an independent accident but has a tendency to chain is also not common in other insurance. The KDIC, which has the status of an insurer of a financial institution, was selected as a bankruptcy trustee at the time of the bankruptcy filling of the insolvent financial institution, and the bankruptcy work was efficiently and promptly performed and received a positive evaluation. Efforts of deposit insurance to effectively manage, maximize dividends and contribute to the bankruptcy system are highly appreciated. The study examines the main contents of deposit insurance centering on the legal insurance relationship, not the contractual relationship between the KDIC and the financial institution as well as reviews the core business contents of KDIC under insurer status of private insurance and legal issues arising from the bankruptcy process. Regarding the bankruptcy administrative affairs, the role of the KDIC contributing to the operation and management of the bankruptcy foundation and its performance were worthy of recognition. Nevertheless, a dispute over the legal status of thae KDIC is always present and the role of KDIC, which manages the risks of financial institutions more actively rather than only limited to the traditional functions of paying deposits of insolvency of financial institutions, is required. And it is necessary to further expend the scope of deposit insurance in order to introduce the functional deposit system and protect depositors.

Depositors Protection Scheme: Appraisal of Islamic Banks Participation in Deposit insurance System

Depositors Protection Scheme: Appraisal of Islamic Banks Participation in Deposit insurance System Salisu Hamisu, Dr. Rusni Hassan Abstract Deposit Insurance Scheme (DIS) has assumed the position of universal importance as a consumer protection scheme for the depositors and investors in the banking sector of nations' economy. The role of Islamic deposit insurance is to create a level playing field between Islamic and conventional banks apart from maintaining a foundation for public confidence in the banks it is also to reinforce the consumer protection aspects that are inherent in Islam. However virtually all the existing DISs are established on legal, regulatory and operational framework devoid of any Islamic bias, meanwhile the Islamic banks and their customers are as much in need of this protection, assurance and sustenance of confidence produced by the scheme as their conventional counterparts. The research therefore examines some of the controversies in the operation of Deposit Insurance as well as its compatibility with Shariah rules under which Islamic banks operate. It looks into the needs and the extent to which Islamic banks can participate into the scheme. The paper concludes that objectives of DIS is compatible with Shariah but also finds out that its designs and some of its operations need to be adjusted for Islamic banks to fully integrated without impairing the provisions of Shariah. Full Text: PDF DOI: 10.15640/jibf.v5n1a3

Effects of Deposit Insurance on Self-Discipline of Bank Franchise Value

Foreign research has shown that the bank franchise value is the important mechanism of the bank’s risk self-discipline. However, the relationship between the franchise value and the risk behavior of our bank must be based on our special financial background. Before the implementation of explicit deposit insurance system in China, there has been an implicit deposit insurance system guaranteed by the government. The traditional literature suggests that the implicit deposit insurance system provides a strong guarantee for commercial banks, which may weaken the risk discipline effect of the bank’s franchise value, and the reasonable explicit deposit insurance system is superior to the implicit deposit insurance system. In the financial context of the explicit deposit insurance system, the self-discipline effect of the franchise value will be repaired. Based on the reality of establishing an explicit deposit insurance system in China, this paper uses the Tobin Q value to measure the franchise value of 16 listed banks in China. The relationship between the franchise value and risk of bank before and after the introduction of explicit deposit insurance is studied by using panel data model. The results show that before the implementation of the explicit deposit insurance system, the self-discipline effect of the franchise value is completely ineffective in the context of the government-guaranteed implicit deposit insurance system. The cross-item coefficient of the explicit deposit insurance system and the franchise value is significantly negative. It shows that the implementation of the explicit deposit insurance system has played a role in restoring the self-discipline effect of the bank’s franchise value.

دور أنظمة التأمین على الودائع فی تحسین إدارة مخاطر السیولة فی البنوک: دراسة مقارنة

الملخص: هدفتالدراسة إلى التعرف على دور أنظمة التأمين على الودائع في تحسين إدارة مخاطر السيولة للبنوک وذلک بالمقارنة ما بين تسعة دول حول العالم والتي أمکن جميع بيانات الدراسة عنها، وتوصلت الدراسة إلى أن دور هذه الانظمة يتباين فيما بين الدول تبعا لاختلاف خصائص انظمة التامين واختلاف خصوصية النظام المصرفي في کل دولة، وبينت النتائج أن أنظمة التأمين التي تعتمد على طريقة القسط المتغير في احتساب أقساط التأمين هي الأنظمة الأکثر مساهمة في تحسين إدارة مخاطر السيولة، کما بينت الدراسة أن هذه الأنظمة وبسبب ما تقدمه من حماية لأموال المودعين في حال تعثر البنک، يمکن أن تساهم في تشجيع البنوک على مزيد من الاستثمارات والتوظيفات مرتفعة المخاطر، والتي من الممکن أن تؤدي إلى تراجع مستويات السيولة الى مستويات منخفضة تهدد استقرار البنک واستمراره وبخاصة في ظل ضعف انظمة الرقابة والاشراف على البنوک، حيث ان نظام التامين سيتحمل تعويض المودعين عن خسائر تتسبب بها إدارة البنک، وتوصي الدراسة إدارة البنوک بزيادة الاهتمام بعمل تقديرات متوازنة لمستويات السيولة بحيث تکون قادرة على مواجهة التزامات البنک في ظل الظروف العادية وغير العادية، وتوصي الدراسة السلطة النقدية أن تتبنى نظام التأمين على الودائع ذو طريقة القسط المتغير وتعزيز صلاحيات أنظمة التأمين لکي تساهم بشکل فعال في تحسين إدارة هذا النوع من المخاطر. Abstract: The study aims to identify the role of deposit insurance systems in improving liquidity risk management for banks with compared between nine countries around the world, that could collect data about them, the study found that the role of these systems varies among States, depending on the different insurance systems characteristics and differences in the banking system in the privacy of each country, and the results showed that the insurance systems that rely on a risk adjested method for calculating insurance premiums are the most contribution to improving liquidity risk management systems. the study also showed that these systems and because of what they offer to protect depositors' money in the event of faltering bank, can contribute to encourage banks to more investments and investments are high risk, which could lead to a decline in liquidity levels to low levels threaten the stability of the bank and its continuation, especially in light of weak control systems and supervision of banks, where the insurance system will bear compensate depositors for losses caused by the bank's management, the study recommends the management of banks to increase interest in the work balanced assessments of the levels of liquidity so as to be able to meet the Bank's obligations under normal and abnormal conditions, the study recommends that the monetary authority to adopt the insurance system deposits a way straight-changing and enhancing the powers of the insurance systems in order to contribute effectively to the improvement of the management of this type of risk.

Analysis of credit cooperation in the current economic space

A study of possible development directions of credit cooperatives in the current challenges of economic space is conducted for effective formation. Modern credit cooperatives are the two most common types: cooperative banks (mostly in Europe) and credit unions (in most parts of the world) and are credit cooperative sector of the economies of many countries. Braking factors for development of credit cooperative are: imperfection of legislation; lack of real financial support from the state; improper control of credit unions; unprofessional administrative bodies on audits of unions and, in some cases, outright cover-up of illegal activities; formation of negative public opinion in the media; encouraging of borrowers do not repay credits; unwillingness of managers of a number of credit unions to implement the basic principles of cooperative credit activity and growth of inconformity of credit union activities with the principles of cooperation. The proposed model for developing three-level cooperative credit system in Ukraine provides phased expansion of the market mandate for credit unions in corporate lending and the provision of financial services, creation of credit cooperatives, central and local cooperative banks and other elements of the system that are addressing the whole spectrum of problems, in particular the system of guarantees and deposit insurance system to support the financial stability of credit unions, credit bureaus, centers of information technology, service infrastructure that would ensure minimizing risk and entry of credit unions in payment systems, educational infrastructure and so on.

The effects of public capital infusions on banks’ risk-shifting to the deposit insurance system in Japan

Using option pricing based models, we compute the actuarially fair deposit insurance premium and the market value of assets and asset volatility for Japanese banks as implied by their stock prices. The findings based on these variables suggest that banks shift risks to the deposit insurer who charges them risk insensitive premiums. Well-designed regulatory policies in response to the crisis, however, effectively restrain banks’ risk-shifting. Not only did the introduction of the prompt corrective action discipline insured banks, but large-scale public capital infusions successfully deleveraged banks whose assets are risky. This effectively mitigated banks’ risk-shifting.

Deposit Insurance and Bank Liquidity: Does Ownership Structure Matter?

We examine how the level deposit insurance coverage affects bank liquidity. We also test the role of ownership in the relationship between deposit insurance coverage and bank liquidity. This study uses quarterly data of Indonesian banks from Q1:2002 - Q2:2008. We argue that the presence of explicit deposit insurance changes a bank‘s behavior in liquidity management in the form of decreasing asset liquidity. We find some evidence on the negative impact of deposit insurance coverage on bank liquidity. However, little is found on the role of ownership structure. The credibility of deposit insurance system and implicit guarantee are the main policy implications.

Russian Bank Database: Birth and Death, Location, Mergers, Deposit Insurance Participation, State and Foreign Ownership

For every Russian bank we collect records of its registration, license withdrawal, liquidation, location changes, mergers and acquisitions, entrance to and exit from the Deposit Insurance System as well as state and foreign ownership. We describe our sources and the resulting database.

Research on the Deposit Insurance Pricing Under the Marketing RMB Interest Rate

The deposit insurance pricing is the core issue of deposit insurance system, it determines the success or failure of the deposit insurance system in a way. In the current deposit insurance pricing methods, we treat the interest rates as a constant. With the interest rate marketization in China, the deposit insurance pricing methods have also changed accordingly. In this paper, we will give a functional representation of the impact of RMB interest rate marketization on interest rate by fitting the coefficients of the cubic function. Then we will use the data of 2013 to prove it. For the points that do not conform to this rule, we also have some explanations related to the major economic events at that time.

Bank credit default swaps and deposit insurance around the world

We investigate the impact of deposit insurance schemes on banks' credit risk – a predictor of failure and a key element in the current financial crisis. Unlike most studies, which use balance sheet measurements of risk, we adopt a forward-looking and market-based measure of bank credit risk: the credit default swap (CDS) spread. We find that banks in countries with explicit deposit insurance systems have higher CDS spreads, supporting the “moral hazard” view. The results suggest that deposit insurance design features that lessen the adverse impact are risk-adjusted premium, coinsurance systems, government-established systems, “risk-minimizing” systems, and systems with dual-funding sources. Full coverage appears to stabilize bank risk only during the financial crisis period. More stringent bank regulation, such as capital adequacy regulation and independent supervision, could reduce the undesirable impact of deposit insurance. Deposit insurance seems to help stabilize volatile markets, as evidenced during the financial crisis and in countries with greater market volatility. In addition, we find that the adverse impact of deposit insurance on bank credit risk is more pronounced for banks with low asset quality and low liquidity.

Discussion on the Trend of China’s Commercial Banks Management: Based on the Influence of Financial Market Development

As the environment of commercial banks, the development of financial market has a profound impact on the commercial banks. In recent years, the continuous development of financial market is both an opportunity and a challenge for the commercial banking industry. This paper tries to analyze commercial bank business challenges brought about by the development of the financial market mainly from three aspects: the development of Internet banking rise, interest rates liberalization and deposit insurance system, financial industry mixed operation trend and takes it as a starting point to explore the trend of development of commercial bank management from the commercial bank organization structure, management mode and business development three aspects.

Islamic Deposit Insurance from Shari'ah Perspective: Special Reference to Malaysia and Sudan

In Islamic banking system various Shari'ah principles are used as underlying contracts to receive the deposits. Usually wadi'ah and qard hasan are used for the current and saving deposits, while mudarabah is used for investment deposits. However, the issue of insuring investment deposits contradicts with the principle of mudarabah, as in principle mudarib is not allowed to provide any guarantee for the principal and fixed return, though there is a different view contrary to this. Hence this paper intends to study and analyze this issue from Shari'ah perspective. This is a qualitative paper and methods followed are descriptive and analytical. The paper also critically examines the practices of Malaysia and Sudan because unlike others these two countries established Islamic deposit insurance scheme under a particular legal system managed by a deposit insurer owned by the government. The paper posits that for a viable Islamic banking system deposit insurance is crucial from both macro and micro perspective. Deposit insurance system is considered one of the significant components of financial safety net. It maintains the public confidence in the banking system and promotes financial stability which conforms to the Maqasid al-Shari'ah. The paper concludes that insuring Islamic deposits is admissible by third party established by the state or by central banks. In fact, there is no contravention of Shari'ah if Islamic banks collaborated in establishing an institution based on the principles of cooperation and takaful to protect the deposits, where each participating bank is both a guarantor and a guaranteed.

The New Concept of Banks Resolution

The report is devoted to a rapid and inclusive process of Cyprus banks resolutions. The mechanism applied is referred to as bail-in. Its uniqueness lies, inter alia, in the necessity to harmonize foreign and domestic legislation on bank resolution. To that end, the author feels it urgent to explore the problems and perspectives of implementation of this instrument in Russia, and to determine necessary conceptual changes of legislation on bank deposit insurance system and banks resolutions.

An International Comparative Study of Models of Deposit Insurance System

Nowadays, the majority of the jurisdictions in the world adopt mandatory insurance systems for the protection of banking deposits. Such systems may differ quite significantly between each other, considering that their design reflects the peculiar political choices made by the jurisdiction concerned. The purpose of this essay is to analyse a selection of these deposit insurance systems, chosen for their specific structure, in order to analyse their specific features. Following the individual analysis of each relevant model, a comprehensive comparative analysis highlights their major differences and, eventually, traces the major tendencies and the most innovative aspects of them. At the end, a certain degree of convergence on specific features between the analysed jurisdictions will emerge.

Determinants Of European Banks' Capital Adequacy

This paper examines the factors affecting the Common Equity Tier 1 Ratio (CET1), which is a measure of the relationship between core capital and the risk-weighted assets of banks. The research is based on a randomly selected sample from the group of banks examined by the European Central Bank authorities. The ECB conducted stress tests assessing the CET1 Ratio with respect to the Basel III regulations. The findings confirm the hypothesis about the impact of bank size and the risk indicators (risk-weight assets to total assets ratio and the share of loans in total assets) on banks’ capital adequacy. They also confirm strong effect of competitive pressure and the negative correlation between the CET1 Ratio and the share of deposits in non-equity liabilities, which may be explained by the existence of the deposit insurance system. Finally the paper presents the limitations of the study and conclusions regarding possible further research in this subject area.