Catalog

	Table of Contents
p. 36 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 : V. Bank Insolvency and Depositor Protection

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C. Deposit Insurance: International Standards

In September 2001, the FSF endorsed the report of its Working Group on Deposit Insurance as international guidance for jurisdictions considering the adoption of an explicit, limited-coverage deposit insurance system. The report has three general findings:

1. explicit and limited deposit insurance is preferable to implicit coverage if it clarifies obligations to depositors and creditors and limits the scope for discretionary decisions that may result in arbitrary actions;
2. deposit insurance systems must be properly designed, well-implemented and understood by the public to be credible and to avoid moral hazard; and
3. to be effective, the deposit insurance system needs to be part of a well-designed financial safety net, and be supported by strong prudential regulation and supervision, effective laws that are enforced, and sound accounting and disclosure regimes.

According to the FSF report, the principal objectives of a deposit insurance system are: (i) to contribute to the stability of a country's financial system; and (ii) to protect less financially sophisticated depositors from the loss of their deposits when banks fail. The report also provides for the variety of options available for achieving these objectives.

The Working Group developed 20 "key points of guidance" for countries considering the adoption or reform of an explicit, limited-coverage deposit insurance system. The key points are grouped under four main headings: (i) contextual issues for deposit insurance systems; (ii) processes for adopting and maintaining a deposit insurance system; (iii) structure and design features; and (iv) resolutions, reimbursements, claims, and recoveries.

Recognizing that existing guidance was insufficient, in March 2008, the Basel Committee and the International Association of Deposit Insurers (IADI, established in May 2002) released for consultation an extensively revised set of principles for deposit insurance. [Basel Committee & IADI, Consultative Document: Core Principles for Effective Deposit Insurance Systems (Mar 2009)]

The document, comprising 18 principles in 10 groups, addresses: setting objectives (principles 1-2), mandates and powers (principles 3-4), governance (principle 5), relationships with other safety-net participants and cross-border issues (principles 6-7), membership and coverage (principles 8-10), funding (principle 11), public awareness (principle 12), selected legal issues (principles 13-14), failure resolution (principles 15-16) and reimbursing depositors and recoveries (principles 17-18).

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