Modis: A Market-Oriented Deposit Insurance Scheme

Edda Zoli, Danyang Xie and Reza Vaez-Zadeh

No 2002/207, IMF Working Papers from International Monetary Fund

Abstract: This paper argues that an optimal deposit insurance scheme would allow the level of insurance coverage to be determined by the market. Based on this principle, the paper proposes an insurance scheme that minimizes distortions and embodies fairness and credibility, two essential characteristics of a viable and effective deposit insurance scheme. Using a simple model for the determination of the optimal level of insurance coverage, it is shown that the optimal coverage is higher for developing compared to developed countries; a condition that is broadly satisfied by prevailing deposit insurance practices around the world.

Keywords: WP; interest rate; insurance system; insured deposit; deposit insurance; market-oriented approach; insurance scheme; guarantee scheme; insurance agency; deposit liability; protection arrangement; Insurance; Moral hazard; Bank deposits; Distressed institutions; Global; Middle East; Western Hemisphere; Europe; Africa (search for similar items in EconPapers)
Pages: 33
Date: 2002-12-01
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Citations: View citations in EconPapers (6)

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