Deposit Insurance Around the Globe : Where Does It Work?
Explicit deposit insurance has been spreading rapidly in recent years, even to countries not advanced in financial and institutional development. Economic theory indicates that deposit insurance design features interact--for good or ill--with country-specific elements of the financial and governmental contracting environment. The authors document the extent of cross-country differences in deposit insurance design and review empirical evidence on how design features affect private market discipline, banking stability, financial development, and the effectiveness of crisis resolution. This evidence challenges the wisdom of encouraging countries to adopt explicit deposit insurance without first addresing weaknesses in their informational and supervisory environments.
Summary: | Explicit deposit insurance has been
spreading rapidly in recent years, even to countries not
advanced in financial and institutional development.
Economic theory indicates that deposit insurance design
features interact--for good or ill--with country-specific
elements of the financial and governmental contracting
environment. The authors document the extent of
cross-country differences in deposit insurance design and
review empirical evidence on how design features affect
private market discipline, banking stability, financial
development, and the effectiveness of crisis resolution.
This evidence challenges the wisdom of encouraging countries
to adopt explicit deposit insurance without first addresing
weaknesses in their informational and supervisory environments. |
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