Sibling Rivalry in the Financial Safety Net: Governance Arrangements for Bank Resolution and Deposit Insurance

Atilla Arda and Jan Nolte

No 2025/005, IMF Technical Notes and Manuals from International Monetary Fund

Abstract: The technical note and manual "Sibling Rivalry in the Financial Safety Net," authored by Atilla Arda and Jan Nolte, examines the governance structures essential critical for effective bank resolution and deposit insurance functions. Considering the vulnerabilities exposed during the 2008-09 global financial crisis, the note emphasizes the interconnectedness of these two critical functions, both of which aim to safeguard depositors and maintain financial stability. The authors discuss various institutional arrangements, highlighting the choice between integrating both functions within existing agencies or establishing new entities. The note then identifies potential conflicts of interest among resolution authorities, deposit insurance systems, other safety net participants such as central banks and supervisory agencies, and the financial sector. These potential conflicts underscore the necessity of robust governance frameworks to address these challenges and ensure autonomy, operational independence, and accountability of the two functions. The note emphasizes the need for strong legal protections for individuals in charge of resolution and deposit insurance, ensuring they can take decisive actions during crises. By exploring best practices and case studies, including Denmark's integrated framework, the authors provide valuable insights into optimizing institutional and governance arrangements by integrating the deposit insurance function within the resolution authority. This could support effective cooperation among authorities which is vital for creating resilient financial safety nets.

Keywords: deposit insurance; bank resolution; crisis preparedness; crisis management; financial crisis; financial stability; governance; independence; autonomy; deposit insurance agency; deposit insurance system; governance arrangement; deposit insurance fund; deposit insurer; Bank resolution framework; Financial safety nets; Financial sector stability; Global (search for similar items in EconPapers)
Pages: 35
Date: 2025-02-10
New Economics Papers: this item is included in nep-mac
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