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- Title
INDĖLIŲ DRAUDIMO SISTEMOS SVARBA BANKŲ SISTEMOS STABILUMO KONTEKSTE.
- Authors
Deltuvaitė, Vilma
- Abstract
Financial institutions (especially banks) are important in the economy because of their involvement in the payments system, their role as intermediaries between depositors and borrowers, and their function as agents for the transmission of monetary policy. By their nature, banks are vulnerable to liquidity and solvency problems, among other things, because they transform short-term liquid deposits into longer-term, less-liquid loans and investments. They also lend to a wide variety of borrowers whose risk characteristics are not always readily apparent. The importance of banks in the economy, the potential for depositors to suffer losses when banks fail, and the need to mitigate contagion risks, lead countries to establish deposit insurance system. Deposit insurance has become an increasingly used tool by governments in an effort to ensure the stability of banking systems and protect bank depositors from incurring large losses due to bank failures. Almost all countries actually have financial safety nets in place which include explicit and implicit deposit insurance, bank regulation and supervision, central bank lender of last resort facilities, and bank insolvency resolution procedures. Although deposit insurance is gaining in popularity among policymakers, its desirability is debated by many economists who point to the moral hazard problems involved and the accompanying excessive risk taking by banks. The aim of this article is to analyze the impact of deposit insurance system on banking system stability and to examine the relationship between the occurrence of a systemic crisis and features of a deposit insurance scheme. The research methods were used in this paper: the analysis and synthesis of scientific literature, statistical methods as well as empirical research of the information on 157 systemic banking crises that have occurred in 125 countries since 1970 till 2002. The principle objective of a deposit insurance system is to contribute to the stability of the financial system and protect less financially sophisticated depositors from the loss of their deposits when a bank fails. There are a variety of options available for achieving these objectives. Some countries have implicit deposit insurance system that arises when the public, including depositors and other creditors, expect some form of protection when a bank fails. This expectation usually arises because of the governments past behavior or statements made by officials. Implicit protection is, by definition, never formally specified. There are no statutory rules regarding the eligibility of bank liabilities, the level of protection promised or the form in which reimbursement will take. By its nature, implicit protection creates uncertainty about how depositors, creditors and others will be treated when a bank failure occurs. Some countries have had to introduce explicit blanket guarantees during a financial crisis to fully protect all bank depositors and creditors. This is so called explicit deposit insurance system. The provision of such guarantees may be unavoidable in periods of extreme financial distress to maintain domestic and international confidence in a country's banking system. However, such blanket guarantees in the extreme leads to moral hazard and it can have a number of adverse effects. The research results had showed that 87 countries adopted explicit deposit insurance system and the remaining 93 countries are considered to have implicit deposit insurance system and the adoption of explicit deposit insurance system increased with income level. The research results showed that existence of deposit insurance system does not promote banking system stability and does not protect countries from systemic banking crises.
- Subjects
FACTOR analysis; STATISTICS; FINANCIAL institutions; DEPOSIT insurance; BANKING industry; PAYMENT systems; MONETARY policy
- Publication
Economics & Management, 2008, p107
- ISSN
1822-6515
- Publication type
Article