Catalog

	Table of Contents
p. 33 of 58 BACK | NEXT Purpose and Structure of the Toolkit Part One: Introduction and Overview Part Two: Preconditions and Infrastructure for Financial Sector Development Part Three: Financial Regulation and Supervision I. Financial Stability, Development and Institutional Design II. Financial Regulation: General Principles III. Financial Regulatory Structure IV. Banking Regulation V. Bank Insolvency and Depositor Protection A. Lender of Last Resort B. Depositor Protection Schemes C. Deposit Insurance: International Standards D. Bank Insolvency VI. Securities and Derivatives Regulation VII. Insurance and Pensions Regulation VIII. Regulation of Financial Conglomerates Part Four: Regional Financial Integration Part Five: ADB's Intervention in the Financial Sector Bibliography Glossary and List of Abbreviations Acknowledgements

Financial Sector Legal and Regulatory Toolkit : Part Three: Financial Regulation and Supervision

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V. Bank Insolvency and Depositor Protection

Another area of necessary focus for banking regulation, and one not currently adequately dealt with by the Basel Core Principles, is the provision of appropriate safety net and exit arrangements.

Historically, banking regulation developed as a response to crises resulting from the nature of banking business as a fractional reserve system based upon the management of credit and duration risks-a system that works so long as depositors remain confident in the safety of their money with individual banks. The risk, of course, is that the collapse of one bank could lead to contagious loss of confidence, resulting in bank runs, potentially causing the collapse not only of individual banks, but also of the banking system as a whole (systemic risk) and the consequent collapse of economic activity generally.

The current global financial crisis is the first global systemic financial crisis since the 1930s. The lessons being developed as a result will have very important implications for financial regulatory design. In addition, the crisis has highlighted weaknesses in domestic, regional and international arrangements to deal with the failure of major cross-border financial institutions, including banks, and the G-20 is working to develop arrangements and guidance in this respect.

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