An explicit deposit insurance is an action that is applied in many countries to protect bank depositors, in full or in part, from losses incurred by the bank's inability to pay its debts when they mature. The deposit insurance system is one component of the financial system safety net that fosters financial stability.
Video Deposit insurance
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Banks are allowed (and usually encouraged) to lend or invest the bulk of the money they save on them instead of securing the full amount (see fractional reserve banking). If many of the borrowers of banks fail to repay their loans when matured, the bank's creditors, including depositors, lose the risk. Because they rely on customer deposits that can be withdrawn with little or no notice, banks in financial matters tend to run bank runs, where depositors try to withdraw funds quickly ahead of possible bankruptcy. Due to the failure of banking institutions to potentially trigger a broad spectrum of hazard events, including economic recession, policymakers maintain a deposit insurance scheme to protect depositors and give them comfort that their funds are not at risk.
Insurance deposits are formed to protect small unit banks in the United States when branch regulations exist. Banks are limited by location so as not to reap the benefits derived from economies of scale, ie unification and webs. To protect local banks in poorer states, the federal government creates savings insurance.
Many national deposit insurance companies are members of the International Association of Deposit Insurers (IADI), an international organization established to contribute to the stability of the financial system by promoting international cooperation and to foster extensive international contact among deposit insurance companies and other interested parties.
Maps Deposit insurance
How it works
Insurance agencies deposit most of the government run or establish, and may or may not be part of the central bank of the country, while some are private entities with entirely private government or entity support.
There are a number of countries with more than one deposit insurance system in operation including Austria, Canada (Ontario & Quebec), Germany, Italy, and the United States.
On the other hand, a deposit insurance system may include more than one country: for example, many banks in the Marshall Islands and Federated States of Micronesia are insured by Federal Deposit Insurance Corporation AS.
Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, and Gabon will also be protected by a single system.
Overview by country
According to IADI, as of January 31, 2014, 113 countries have established some form of explicit savings insurance of 12 in 1974. Another 41 countries are considering the implementation of an explicit deposit insurance system.
North America
United States
In the prewar period and the 1920s, there were various deposit insurance schemes. Those based on self-regulation through shared responsibility succeed; state obligatory insurance schemes do not. The view of Texas in 1919-26 shows that savings insurance for state-hired banks increased the likelihood of bank failures during that period. The United States was the second country (after Czechoslovakia) to establish a national deposit insurance scheme, the Federal Deposit Insurance Corporation, during the Great Depression banking crisis of 1933.
Separate funds, the National Credit Funding Insurance Fund (NCUSIF) administered by the National Credit Union Administration (NCUA), was created in 1970 to insure deposits on credit unions.
In Massachusetts, the Deposit Insurance Fund (DIF) insures deposits exceed FDIC limits in state-leased savings banks. In 1981, the General Law of Credit Agencies and Assistance Organizations was provided for the creation of funds to protect the credit obligations assumed by banks.
Canada
Canada created Canada Deposit Insurance Corporation (CDIC) in 1967. This is similar to the Federal Deposit Insurance Corporation in the United States. Since 1967, 43 financial institutions have failed in Canada and all are members of CDIC. There has been no failure since 1996. Information about the Canadian system is found at http://www.cdic.ca. Insurance is limited to registered member institutions, and covers only the first C $ 100,000 in very specific account categories. The credit unions and the Quebec caisse populaire system are not insured Federal, as they are made under the provincial charter and are supported by the provincial insurance plan, which generally follows the Federal model. Funds in foreign currency, not Canadian dollars, are not insured, such as US dollar accounts even when deposited in a registered CDIC financial institution. Guaranteed Investment Contract with a term of more than 5 years is also not insured. Funds in foreign banks operating in Canada may be closed or not, depending on whether they are CDIC members. Some funds in the Registered Retirement Savings Plan or the Registered Pension Income Fund at their bank can not be borne if invested in a mutual fund or stored in special instruments such as debt securities issued by the government or company. The general principle is to cover sensible deposits and deposits, but not deposits that are deliberately positioned to take profit risks, such as mutual funds or stocks.
The roots of this reform can be traced back to the 19th century, such as Upper Canada's financial problems in 1866, North American panic in 1872 and the failure of 1923 Home Bank Toronto, symbolized today by Casa Loma. Historically, in Canada, regional risk has always spread nationwide in every major bank, unlike the uneven geography of the US banking unit, layered with savings & amp; loans of regional or national size, which in turn spread their risk through investors. In general, the banking system of Canada is well regulated, in part by the Supervisory Office of Financial Institutions (Canada), which can in extreme cases close a financial institution. That and Canada's strict mortgage rules mean that the risk of bank failure similar to the US is very unlikely.
Caribbean and South America
Brazil
In Brazil, the creation of deposit insurance was authorized by Resolution 2197 of 1995, the National Monetary Council. This standard mandates the creation of a safeguard mechanism for credit holders of financial institutions, called "Credit Guarantee Funds" (FGCs). Currently, the FGC is governed by Resolution 4222 of 2013. The Fiscal Liability Act prohibits the use of public funds to finance losses, so that it is formed exclusively by the compulsory contributions of participating institutions. The warranty is limited to R $ 250,000 per depositor. Recently, the Guarantee Credit Union Fund (FGCoop) was created, to protect depositors from credit unions and cooperative banks. As FGC, FGCoop guarantees up to R $ 250,000 and comprises obligatory contributions of cooperatives and cooperative banks.
European Union
Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on the deposit-guarantee scheme requires all member states to have a deposit guarantee scheme of at least 90% of the amount deposited, up to at least 20,000 euros per person. On October 7, 2008, Ecofin meeting finance ministers of the European Union agreed to increase the minimum amount to 50,000. Schedule and details of procedures for its implementation, which may be a national problem for member countries, are not immediately available. The number that increased following Ireland's move, in September 2008, to increase its deposit insurance to an unlimited amount. Many other EU countries, beginning with the UK, reacted by increasing their limits to avoid people transferring savings to Irish banks.
In November 2007, a comprehensive report was published by the EU, with a description and comparison of each Insurance Scheme in place for all EU Member States. The report concludes that many (but not all) schemes have limited the means of guarantees for retail consumers, usually individuals, although small or medium enterprises (SMEs) are sometimes also included in the retail category. Common to all schemes is, that they do not apply to large wholesale customers. The argument behind this decision is that large wholesale customers are often in a better position than retail customers to assess the financial risks of particular companies with whom they are involved, or even able to in their own hands to reduce their risk by using several financial banks/institutes. The report recommends this practice to continue, as scheme restrictions for "retail customers (excl./incl" business SMEs) "help reduce the cost of the scheme while also helping to raise funds available to those who are completely dependent on the warranty - when activated to protect the claimant in certain cases.
By EU country
From October 2008, many EU countries increased the amount covered by their deposit insurance schemes. Since this amount is usually encoded in legislation, there are certain delays before the new amount is formally valid. [6]
Footnotes: (*) By Art. 7 (1a) of the Directive 94/19/EC of all EU Member States is expected to increase the amount to EUR 100,000 as of December 31, 2010. This is the case in all EU countries. For countries with non-EURO currency, the limit is close to EUR 100,000 eg. in Denmark the DKK 750,000 is approaching that limit, depending on the EUR-DKK rate.
Rest of Europe
Albanian
Deposit insurance in Albania is handled by the Albanian Deposit Insurance Agency (Agjencia e Sigurimit tÃÆ'Â «Depozitave ) and covers savings up to a maximum of ALL2,500,000 (approximately USD23,000).
Andorra
Insurance deposits in Andorra are handled by the Institut Nacional AndorrÃÆ' de Finances and cover deposits up to a maximum limit of EUR100,000 made by individuals and legal entities, regardless of their nationality or domicile.
Belarus
Insurance deposits in Belarus are handled by the Deposit Compensation Agency ( ???????????????????????????????????????????????????????????????????????????????? ??????????????????????????????????????????????????????????????????????? ??? ) and covers 100% of deposits, but only belong to individuals, not organizations.
Iceland
Insurance deposits in Iceland are handled by the Guarantee Fund and Investor Guarantee ( TryggingarsjÃÆ'³ÃÆ'  ° ur ) and cover a minimum of 20 â,¬ 887 euros. However, the funding is drastically insufficient to cover the failure of the financial crisis bank Iceland 2008-2012, especially Iesave. This case shows the limits of deposit insurance in protecting against systemic failure (as opposed to the collapse of one bank or other institution), especially when a small country offers banking to international customers.
Liechtenstein
Insurance deposits in Liechtenstein are handled by the Liechtenstein Bankers Association and include deposits of up to CHF100,000.
Monaco
Banks operating in Monaco participate in the French deposit guarantee scheme, Fonds de Garantie des DepÃÆ'Â'ts (FGD), under the same conditions as the French bank.
Norwegian
Insurance deposits in Norway are handled by the Guarantee Fund of the Norwegian Bank ( Bankenes sikringsfond ) and cover deposits of up to 2 million NOK.
Russian
Russia enacted a deposit insurance law in December 2003 and established a national deposit insurance agency (DIA) in 2004. Until 2004, the Russian banking system was divided: state-owned Sberbank obligations were guaranteed by law, while other banks were not insured in any way. , creating an unfair advantage for Sberbank. The law deals only with individual deposits. Maximum compensation is limited to 1,400,000 rubles (equivalent to about 21,800 US dollars or 19,500 Euros at the September 2016 exchange rate). In January 2008, DIA funds exceeded 68 billion rubles (2.8 billion US dollars). There were 15 "insured events" (bankruptcy cases involving HER intervention) in 2007 with payments reaching 350 million rubles.
This body was formed as a state-owned enterprise, jointly managed by the Central Bank and the Russian government. HER membership is a mandatory requirement for any bank operating with private investors' money. The Russian Central Bank uses bank receipts into the HE system to get rid of unhealthy banks and money laundering. The killing of Andrey Kozlov, the executive of the Central Bank responsible for HER acceptance, is directly related to his uncompromising attitude towards money laundering.
San Marino
Insurance deposits in San Marino are handled by the Central Bank of San Marino and include deposits of up to EUR50,000.
Swiss
Switzerland has a privately operated savings insurance system called Swiss Bank Deposit Safe and Securities Dealer. This guarantees up to CHF 100 000 per bank customer per bank. Membership is mandatory for all banks and securities dealers regulated by the Swiss Financial Market Supervisory Authority (FINMA). See the list of members of the Swiss Bank Deposit Reserve and Securities dealer at http://www.einlagensicherung.ch/en/bankkunden-link/bankkunden-unterzeichner.htm
It had covered the depositors in 1993 in the case of the failure of Spar- und Leihkasse Thun SLT, Thun. The next case occurred in 2007 with the liquidation of AB FIN SA (securities dealer) in Lugano and with Kauphting (Luxembourg) SA, the Geneva branch office closed on October 9, 2008. The client of this bank received payment (at that time up to CHF 30 000 per subscriber ) within three weeks.
For more information see the FAQ at http://www.einlagensicherung.ch/en/bankkunden-link/bankkunden-faq.htm
Turkish
Deposit insurance in Turkey is handled by the Deposit Insurance Fund ( Tasarruf Mevduat? Sigorta Fonu ) and covers a maximum of 100,000 TL. (About $ 30,000)
Ukraine
Deposit guarantee system in Ukraine operates in accordance with the Law of Ukraine  «On the Household Deposit Guarantee System» of February 23, 2012, Ref. number 4452-VI. and covers deposits up to 200,000 UAH (about 7,550 US dollars or 6,660 Euro at the level of September 2016).
British Islands Offshore
In response to the 2008 financial crisis, Guernsey and Jersey introduced a savings compensation scheme. The Guernsey scheme came into effect in November 2008 and offered compensation up to £ 50,000 per depositors, subject to a total limit of Ã, Â £ 100 million in a five year period. This scheme does not cover the company or, with the exception of a small, trust account. The Jersey scheme came into effect in November 2009 and offers the same level of protection.
The Isle of Man bank deposit insurance scheme was introduced in 1991 to cover 75 per cent of the $ 15,000 per deposit per first bank, but it was the crisis of the Icelandic government that was hit by the 2008 crisis by Kaupthing Bank in Iceland after the United States. The Kingdom suspended the trading license of a Kaupthing subsidiary in the United Kingdom that imposed a radical revision of deposit insurance in the Isle of Man. Unable to secure reserves held by Kaupthing in Iceland or a Kaupthing subsidiary in the UK to facilitate customer withdrawals, Kaupthing Singer and Friedlander (Isle of Man) Ltd. see the Isle of Man's banking license suspended after operating less than a year, forcing the company to ask to expire. The Isle of Man's government called for an emergency parliamentary session of Tynwald who voted unanimously to bring the Isle of Man depositors' compensation scheme in line with the new expanded scheme in Britain, securing immediate 100 percent of the first £ 50,000 per deposit per bank, amendments for subsequent inclusion in corporate and charity account schemes. The Isle of Man Government also pressured the Icelandic government to honor endless collateral and bind Kaupthing of all depositors' funds held by Kaupthing, Singer and Friedlander (Isle of Man) Ltd.
Australia and New Zealand
The last bank failure in which Australian depositors lost money (and then only minimal amount) was the trade bank, Central Bank of the Australian Manufacturers, in 1931 (Fitz-Gibbon and Gizycki 2001). Since the early 1930s, the problems of the banking sector have been resolved without loss of depositors.
The Prime Minister of Australia announced on October 12, 2008 that, in response to the 2008 economic crisis, 100% of all deposits will be protected over the next three years. This is then reduced to a maximum of $ 1 million per customer per institution. This move comes on top of the existing mandates of APRA and ASIC to monitor Australian banks and take deposits of authorities to ensure that their risks do not jeopardize the security of depositors' funds. On September 11, 2011, it was announced that the guarantee would fall to $ 250,000, effective February 1, 2012.
New Zealand announced the Retail Deposits Guarantee Scheme, an opt-in scheme for retail deposits on October 12, 2008. The extension of the scheme was announced on August 25, 2009 and the scheme is valid until December 31, 2011. From January 1, 2012 bank deposits in New Zealand are not protected by Government.
Asia
China
China recently introduced a preliminary proposal for a bank deposit insurance system, which will eventually cover all individual bank accounts up to $ 81,000. With most Chinese savers holding far less than the maximum, and the central bank has calculated that 99.6% of depositors will be fully protected. The plan is expected to come into force in January 2015, and is intended by Chinese officials to increase certainty and help customers better assess risks and protect the country's financial stability in the event of a crisis. China has one of the largest deposit bases in the world and in October, bank deposits totaled about $ 18.2 trillion.
India
India introduced the Deposit Insurance in 1962. The Deposit Insurance Corporation began operations on 1 January 1962 under the supervision of the Reserve Bank of India (RBI). 1971 witnessed the founding of another institution, Credit Guarantee Corporation of India Ltd. (CGCI). In 1978, DIC and CGCI merged to form the Deposit Insurance and Credit Guarantee Institution (DICGC).
Hong Kong
Hong Kong Deposit Protection Board is an independent and statutory body established to manage and oversee the operation of the Deposit Protection Scheme. The maximum deposit protection amount was HK $ 100,000 in 2006 (when the Hong Kong Deposit Protection Board was established), now with a limit of up to HK $ 500,000 (or equivalent in RMB or other foreign currency).
Japanese
Deposit Insurance Corporation of Japan, established in 1971 and based in Tokyo, oversees this function for institutes other than agricultural and fisheries cooperatives. For agricultural and fishery cooperatives and Norinchukin, the Institute for Agricultural and Fisheries Victims Assurance, oversees this.
Malaysia
Malaysia introduced the Deposit Insurance System in September 2005. Malaysia Deposit Insurance Corporation (Malay: Malaysian Insurance Deposit Insurance Corporation (PIDM) is a legal entity established under Malaysian Deposit Insurance Company ( Mongolia
During the 2007 global financial crisis, Mongolia extended the blanket guarantee to protect all bank deposits. At that time the guarantee coverage is 1.7 times higher than the state budget of the country.
On January 10, 2013, the Mongolian Parliament adopted a Law on Insurance for Bank Deposits which established a compulsory insurance scheme to protect the bank's monetary savings.
Philippines
Deposits in the Philippines up to PHP500.000 are borne by the Philippine Deposit Insurance Agency [PDIC]. It was raised from the previous insurance coverage of PHP250,000.
Singapore
Deposits in Singapore are borne by the Singapore Deposit Insurance Corporation [SDIC] up to a maximum of $ 50,000 per bank or finance company for each of the depositors.
South Korea
South Korea includes bank deposits by Korea Deposit Insurance Corporation (KDIC) up to a maximum of 50 million won per bank per individual. KDIC, established in 1996 just before the East Asian financial crisis of 1997, proved its effectiveness through the crisis and gradually increased its capacity over the years.
The deposits made for South Korean credit unions are not covered by KDIC, but the Korean Credit Cooperative Federation (KFCC) and the Korea National Credit Union Federation (NCUFK) regulate their respective members and include deposits to the same amount covered by KDIC.
Taiwan
Deposits in Taiwan up to NT $ 3,000,000 are covered by Central Deposit Insurance Corporation. It was raised from the previous insurance coverage of NT $ 1,500,000. (or equivalent in dollars or other foreign currency).
Thai
A complete deposit protection system was introduced in Thailand by the establishment of Deposit Protection Agency (DPA) on August 11, 2008, in accordance with the B.E. 2551. The purpose of the Agency as prescribed by law provides protection against deposits in the financial institution system; the administration of an institution subject to control under the Institution's Financial Institution Act and the liquidation of a financial institution whose license has been revoked. Deposits in Thailand are fully guaranteed until August 10, 2011. From August 11, 2011 to August 10, 2012, the coverage fell to 50 million baht per depositor per bank. Since then its coverage is limited to THB one million per depositors per bank.
Economic impact
When a country has a deposit insurance scheme, foreign investors (aka non-resident bank depositors) are more likely to commit passive deposits greater amounts of money in those nation's banks (which have bank deposits) insurance schemes ).
Having a bank deposit insurance scheme (for all practical purposes) ensures that nation states will be more likely to have higher levels of passive foreign investment (in margins of insurable amount).
Passive foreign investment in the national state financial system allows more loans to be made when the conditions of the global financial system narrow down the amount of money that can be lent. There have been major studies conducted over the years about the impact on foreign investments from the bank deposit insurance scheme .
Insurance deposits allow banks to increase the money supply, without which banks that are under-funded may suffer from bank runs that are prevented by insurance. This encourages inflation.
Criticism
Deposit insurance advocates claim that the scheme introduces the issue of moral hazard, encouraging both depositors and banks to take excessive risks. Without deposit insurance, banks will compete for deposits because depositors will prefer safe banks than risky banks to keep their money. With deposit insurance, banks can take excessive risks because savers are not afraid of the safety of their deposits and therefore do not move their money to a safer bank. Risk is shared by all banks, safe or risky. There are instances where bank managers have made big money by lending money at high interest rates for customer risk, such as real estate speculation, and government redeeming banks while managers are saving their money and finding new jobs.
If the deposit insurance is provided by another business or company, like other insurance agreements, it is assumed that insurance companies will charge higher rates or simply refuse to cover banks involved in risky behavior, thus solving temporary moral hazard problems while reducing risk of escape bank.
The Bibby plan, which covers the moral hazard issue while still preventing bank runs is that the state must provide deposit insurance, but the bank will pay a regular premium to the state that reflects the level of deposit insurance (which could be in the choice of banks) and the risk attached to the bank certain. This will enable some elements of differentiation between banks in the degree of riskiness and in the level of insurance offered.
Organization and programs
This is the Crown or State run insurance company deposits
- Afghan Deposit Insurance Corporation (ADIC) (Afghanistan)
- Federal Deposit Insurance Corporation (FDIC) (United States)
- National Credit Union Distribution Insurance Fund (part of NCUA) (United States)
- American Share Insurance (ASI) (United States, private)
- The Deposit Insurance and Credit Guarantee Institution (DICGC) (India)
- Barbados Deposit Insurance Corporation (BDIC) (Barbados)
- Canada Deposit Insurance Corporation (CDIC) (Canada)
- The Financial Services Compensation Plan (UK)
- The Deposit Insurance Corporation (DIA) (Russia)
- Instituto para la ProtecciÃÆ'³n al Ahorro Bancario (IPAB) (Mexico)
- Nigeria Deposit Insurance Corporation (NDIC) Nigeria
- Philippine Deposit Insurance Corporation (PDIC) (Philippines)
- Bulgarian Deposit Insurance Fund (DIF) (Bulgaria)
- Korea Deposit Insurance Corporation (KDIC) (South Korea)
- Fonds de Garantie des DepÃÆ'Â'ts (FDG) (French)
- Malaysia Deposit Insurance Corporation (MDIC) (Malaysia)
- The Deposit Compensation Scheme (Isle of Man)
- Savings Deposit Insurance Fund (TMSF) (Turkey)
- Deposit Protection Agency (DPA) (Thailand)
- Deposit Guarantee Fund (physical individual) (Ukraine)
See also
related topics
- Moral hazard, from a financial systems perspective
- The bank is running
- Financial crisis
- Diamond-Dybvig Model, model related to running in bank
References
Further reading
- Research and Guidance Committee (2006), "General Guidelines for Promoting Effective Interrelation Relationships among Clean Financial Safety Officers", IADI, January 2006
- Research and Guidance Committee (2005), "General Guidelines for Bank Failure Settlement", IADI, December 2005
- Research and Guidance Committee (2005), "General Guidelines for Development of Differential Premium Systems", IADI, February 2005
- Demirguc-Kunt Asli, Baybars Karacaovali, Luc Laeven (2005), "Worldwide Deposit Insurance: Comprehensive Database", World Bank Policy Research Working Document 3628, June 2005
- Working Group on Deposit Insurance (2001), "Guide to Developing an Effective Deposit Insurance System", Financial Stability Forum, September 2001
- Working Group on Deposit Insurance (2001), "Volume II: Guidelines for Developing an Effective Deposit Insurance System", Financial Stability Forum, September 2001
- Mark D. Flood (1992), "The Great Deposit Insurance Debate", Federal Reserve Bank St. Louis, Review, July/August 1992
- Carter H. Golembe and Clark Warburton (1958), Bank Liability Insurance in Six States during the 1829-1866 Period, Federal Deposit Insurance Corporation
- Clark Warburton (1959), Deposit Insurance in Eight Countries During the 1908-1930 Period, Federal Deposit Insurance Corporation
External links
- International Deposit Savings Association (IADI)
- Moral Implications Safe Deposit Insurance
Source of the article : Wikipedia
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