tailieunhanh - Encyclopedia of Finance Part 2

Chapter 1 DEPOSIT INSURANCE SCHEMES. Abstract More than two-thirds of member countries of the International Monetary Fund (IMF) have experienced one or more banking crises in recent years. The inherent fragility of banks has motivated about 50 percent of the countries in the world to establish deposit insurance schemes. | PART II Papers Chapter 1 DEPOSIT INSURANCE SCHEMES JAMES R. BARTH Auburn University and Milken Institute USA CINDY LEE China Trust Bank USA TRIPHON PHUMIWASANA Milken Institute USA Abstract More than two-thirds of member countries of the International Monetary Fund IMF have experienced one or more banking crises in recent years. The inherent fragility of banks has motivated about 50 percent of the countries in the world to establish deposit insurance schemes. By increasing depositor confidence deposit insurance has the potential to provide for a more stable banking system. Although deposit insurance increases depositor confidence it removes depositor discipline. Banks are thus freer to engage in activities that are riskier than would otherwise be the case. Deposit insurance itself in other words could be the cause of a crisis. The types of schemes countries have adopted will be assessed as well as the benefits and costs of these schemes in promoting stability in the banking sector. Keywords deposit insurance banks regulation banking crisis bank runs banking instability depositor discipline moral hazard bank supervision financial systems . Introduction During the last three decades of the 20th century more than two-thirds of member countries of the International Monetary Fund IMF have experienced one or more banking crises. These crises occurred in countries at all levels of income and in all parts of the world. This troublesome situ ation amply demonstrates that while banks are important for channeling savings to productive investment projects they nonetheless remain relatively fragile institutions. And when a country s banking system experiences systemic difficulties the results can be disruptive and costly for the whole economy. Indeed the banking crises that struck many Southeast Asian countries in mid-1997 cost Indonesia alone more than 50 percent of its Gross Domestic Product GDP . The inherent fragility of banks has motivated many nations to establish .