Deposit Insurance: A Survey of Actual and Best Practices

Abstract

The paper surveys the characteristics of explicit systems of deposit insurance in 68 countries. It compares these actual practices with a set of best practices that has been adopted by IMF staff for their advice to member countries. These best practices seek to establish a system of deposit insurance that provides incentives for all parties - whether they are directly or indirectly affected by the guarantee - to keep the financial system sound. The paper discerns some convergence toward best practices in recent years, but notes several areas where improvements in the incentive structure are still necessary.

Keywords: Adverse selection, agency problems, moral hazard, political interference, regulatory capture

JEL Classification: G18, G21, G22, G28, G30