Deposit Insurance and Crisis Management

G. Garcia

No 2000/057, IMF Working Papers from International Monetary Fund

Abstract: A well-designed deposit insurance system (DIS) will provide incentives for citizens to keep the financial system sound. However, a poorly designed DIS can foster a financial crisis. This paper, therefore, makes recommendations for creating and running a limited, incentive-compatible, DIS. The paper also examines factors in the decision to grant, temporarily, a comprehensive guarantee, and the design of that guarantee, should a systemic financial crisis nevertheless occur. It concludes with guidance on the removal of that guarantee.

Keywords: WP; banking system; insurance fund; financial system; failed bank; Deposit insurance; comprehensive guarantee; adverse selection; financial backing; problem bank; flight to quality; bank loss; franchise value; unguaranteed credit rating; full guarantee; subordinated debt-holder; banking industry; Commercial banks; Bank deposits; Bank resolution; Moral hazard; Global (search for similar items in EconPapers)
Pages: 80
Date: 2000-03-01
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Citations: View citations in EconPapers (9)

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