Deposit insurance 1662004 225951719 2008-07-16T04:32:21Z Lhammond 733676 /* North America */ Explicit '''deposit insurance''' is a measure introduced by [[policy maker]]s in many [[countries]] to protect deposits, in full or in part, in the event of a [[Bank run|"run" on a bank]] or banks. The failure of a [[bank]] has the potential to trigger a much broader spectrum of harmful events. Deposit insurance systems are one component of a [[finance|financial]] system [[safety net]] that contributes to the promotion of financial stability. == Why is it needed == The purpose of deposit insurance varies from one country to another but in most cases they are designed to protect less financially sophisticated depositors and to contribute to financial stability in an environment where banks are allowed to lend, or use otherwise, most of the money that they receive as deposits instead of safe-keeping the full amounts (see [[fractional-reserve banking]]). Many national deposit insurers are members of the International Association of Deposit Insurers ([[IADI]]), an international organization established to contribute to the stability of financial systems by promoting international cooperation and to encourage wide international contact among deposit insurers and other interested parties, in particular, [[IADI]]. == How it works == Deposit insurance [[institutions]] are for the most part government run or established, and may or may not be a part of a country's [[central bank]], while some are private entities with government backing or completely private entities. There are a number of countries with more than one deposit insurance system in operation (e.g. [[Austria]], [[Canada]] ([[Ontario]] & [[Quebec]]), [[Germany]], [[Italy]] and the [[United States]]). On the other hand, one deposit insurance system can cover more than one country: the [[Marshall Islands]], [[Micronesia]], and [[Puerto Rico]] are insured by the US [[Federal Deposit Insurance Corporation]]. [[Cameroon]], the [[Central African Republic]], [[Chad]], [[Democratic Republic of the Congo|Congo]], [[Equatorial Guinea]] and [[Gabon]] will be covered also by a single system. == History == === North America === The [[United States]] was the first country to establish an official deposit insurance scheme, during a [[Great Depression]] banking crisis in 1934. Canada created its own Deposit Insurance Corporation in 1967. It is similar to the [[Federal Deposit Insurance Corporation]] in the United States. Since [[1967]], 43 financial institutions have failed in Canada and all 43 were members of '''CDIC'''. There have been no failures since [[1996]]. Information on the Canadian system is found at http://www.cdic.ca. Read this in detail if you are concerned about your deposit accounts, or the status of insurance on your RRSP or RRIF savings. The advice is quite easy to understand and informative, read carefully and fully. Insurance is restricted to registered member institutions, and covers only the first $100,00 in very specific categories of accounts. Credit unions and Quebec's caisse populaire system are NOT insured Federally, because they are created under Provincial charters and backed by Provincial insurance plans, which generally follow the Federal model. Many might be suprised to know that funds in a foreign currency, not Canadian dollars, are NOT insured, such as a US dollar accounts even when held in a registered CIDC financial institutions. GIC's with a longer term than 5 years are also not insured. Funds in foriegn banks oeprating in Canada are not covered. Some funds in your RRSP or RRIF at ther bank may not covered if they are invested in mutual funds or held in specific instruments like debentures issued by government or corporations. Read the CDIC site carefully for more information. The general principle is to cover reasonable deposits and savings, but not deposits deliberately positioned to take risks for gain, such as mutal funds or stocks. The roots of all of this well organized reform can be traced back to the 19th century, such as the Upper Canada's finacial problems of 1866, the North American panic of 1872 and the 1923 failure of Toronto's Home Bank, symbolized today by Casa Loma. Historically in Canada regional risk has always been spread nationally within each large bank, unlike the uneven geography of US unit banking. layered with savings & loans of regional or national size, who in turn disperse their risk through investors. Generally speaking, the Canadian banking system is well regulated, in part by the efficient staff of the little know Inspector of Financial Institutions, who can in an extreme case close a financial instituion. That, plus Canada's tight mortgage rules, mean the risk of bank failures similar to the US are slim, but not impossible. [[Mexico]]'s Banking Act of 1897 established the legal possibility of failure of a credit institution, but set up some mechanisms in the banking law itself to prevent bank failures -- but the law itself did not create a formal insurance scheme. In 1981 the General Law of Credit Institutions and Auxiliary Organizations provided for the creation of a fund to protect credit obligations assumed by banks. === Caribbean & South America === === Europe === The UK only started its own Deposit Insurance scheme after the collapse of the [[Northern Rock]] bank. === Australasia === === Asia-Pacific region === == Geographical extent == According to [[IADI]], as of June 2006, there are currently 118 countries with a deposit insurance system in operation, pending, planned or under serious study (i.e. 95 in operation, 11 pending, 12 planned or under serious study). == Economic impact == When a [[nation state]] has a deposit insurance scheme, foreign investors (aka non-resident bank depositors) are more likely to ''passively deposit'' larger amounts of money in the banks of said nation state (that has a bank deposit insurance scheme). Having a ''bank deposit insurance scheme'' (for all practical purposes) guarantees that a nation state will more likely have a higher rate of passive foreign investment (within the margin of insurable amount). Passive foreign investment in a nation state's finance system allows for more lending to be made when global finance system conditions constrict the amount of lendable money. There has been substantial research done over the years on the impact on ''foreign investment'' of ''bank deposit insurance schemes''. ==Deposit insurance organizations and programmes== These are the Crown or State run deposit insurance corporations documented within Wikipedia * [[Federal Deposit Insurance Corporation]] (FDIC) ([[USA]]) * [[National Credit Union Administration]] (NCUA) ([[USA]]) * [[American Share Insurance]] (ASI) ([[USA]], Private) * [[Canada Deposit Insurance Corporation]] (CDIC) ([[Canada]]) * [[Financial Services Compensation Scheme]] ([[United Kingdom]]) * [[Deposit Insurance Agency]] (DIA) ([[Russia]]) * [[Instituto para la Protección al Ahorro Bancario]] (IPAB) ([[Mexico]]) * [[Philippine Deposit Insurance Corporation]] (PDIC) ([[Philippines]]) * [[Bulgarian Deposit Insurance Fund]] (BDIF) ([[Bulgaria]]) * [[Korea Deposit Insurance Corporation]] (KDIC) ([[Korea]]) * [[Fonds de Garantie des Depôts]] (FDG) ([[France]]) * [[Malaysia Deposit Insurance Corporation]] (MDIC) ([[Malaysia]]) ==See also== Related topics * [[Moral hazard]], from the finance system point of view * [[Bank run]] * [[Financial crisis]] * [[Diamond-Dybvig model]], a model relating to runs on banks ==Research and guidance papers on deposit insurance== Related research papers * Research and Guidance Committee(2006), [http://www.iadi.org/html/App/SiteContent/2006-01-12_Guidance_on_Interrelationship-final.pdf "General Guidance to Promote Effective Interrelationships among Financial Safety Net Participants"], [[IADI]], January 2006 * Research and Guidance Committee(2005), [http://www.iadi.org/html/App/SiteContent/Guidance%20Bank%20Resol%20Cons%20120505final.pdf "General Guidance for the Resolution of Bank Failures"], [[IADI]], December 2005 * Research and Guidance Committee(2005), [http://www.iadi.org/html/App/SiteContent/IADI-Diff%20prem%20paper%20final_Feb2005.doc "General Guidance for Developing Differential Premium Sysyems"], [[IADI]], February 2005 * Asli Demirguc-Kunt, Baybars Karacaovali, Luc Laeven (2005), [http://wdsbeta.worldbank.org/external/default/WDSContentServer/IW3P/IB/2005/06/08/000012009_20050608111717/Rendered/PDF/wps36280rev.pdf "Deposit Insurance Around the World: A Comprehensive Database"], [[World Bank]] Policy Research Working Paper 3628, June 2005 * Working Group on Deposit Insurance (2001), [http://www.iadi.org/html/App/SiteContent/FSF%20Final%20Report.pdf "Guidance for Developing Effective Deposit Insurance Systems"], Financial Stability Forum, September 2001 * Working Group on Deposit Insurance (2001), [http://www.iadi.org/html/App/SiteContent/CDIC%20Volume%20II.pdf "Volume II: Guidance for Developing Effective Deposit Insurance Systems"], Financial Stability Forum, September 2001 ==External links== International * [http://www.iadi.org International Association of Deposit Insurers (IADI)] Africa * [http://www.centralbank.go.ke/dpf/dpfindex.html Deposit Protection Fund Board](Kenya) * [http://www.ndic-ng.com/ Nigeria Deposit Insurance Corporation (NDIC)] * [http://www.dpb.co.zw/ Deposit Protection Board (DPB)](Zimbabwe) America * [http://www.cdic.ca Canada Deposit Insurance Corporation (CDIC)] * [http://www.dico.com Deposit Insurance Corporation of Ontario (DICO)] * [http://www.fdic.gov Federal Deposit Insurance Corporation (FDIC)] * [http://www.ipab.org.mx Instituto para la Protección al Ahorro Bancario (IPAB)](Mexico) * [http://www.fgc.org.br/ Fundo Garantidor de Créditos (FGC)](Brazil) * [http://www.sbs.gob.pe/PortalSBS/ Fondo de Seguro de Depósitos](Peru) * [http://www.igd.gob.sv/ Instituto de Garantía de Depósitos(IGD)](El Salvador) * [http://www.jdic.org/ Jamaica Deposit Insurance Corporation (JDIC)] * [http://www.lautorite.qc.ca/index.en.html Autorité des Marchés Financiers](Québec) * [http://www.sedesa.com.ar/ Seguro de Depósitos Sociedad Anónima(SEDESA)](Argentina) * [http://www.agd.gov.ec/ Agencia de Garantía de Depósitos (AGD)](Ecuador) Asia * [http://www.kdic.or.kr/english/index.jsp Korea Deposit Insurance Corporation (KDIC)] * [http://www.dic.go.jp/english/index.html Deposit Insurance Corporation of Japan (DICJ)] * [http://www.pdim.gov.my/ Malaysia Deposit Insurance Corporation (MDIC)] * [http://www.pdic.gov.ph/ Philippine Deposit Insurance Corporation (PDIC)] * [http://www.div.gov.vn/EN/index.asp Deposit Insurance of Vietnam] * [http://www.info.gov.hk/hkma/ Hong Kong Deposit Protection Board] * [http://www.sdic.org.sg/ Singapore Deposit Insurance Corporation (SDIC)] * [http://www.cdic.gov.tw/ Central Deposit Insurance Corporation (CDIC, Taiwan)] Europe * [http://www.efdi.net EFDI](Europe) * [http://www.fscs.org.uk Financial Services Compensation Scheme] (United Kingdom) * [http://www.beschermingsfonds.be Beschermingsfonds / Fonds de Protection / Protectionfund] (Belgium) * [http://www.ign.se/English/index.html Insättningsgarantinämnden - The Deposit Guarantee Board](Sweden) * [http://www.dif.bg Bulgarian Deposit Insurance Fund (BDIF)] * [http://www.asv.org.ru/en/ Deposit Insurance Agency (DIA)](Russian Federation) * [http://www.dia.org.al/eng/default.shtml Albanian Deposit Insurance Agency] * [http://www.fpv.cz/index00en.html Deposit Insurance Fund](Czech Republic) * [http://www.talletussuojarahasto.fi/?lang=en Deposit Guarantee Fund] (Finland) * [http://www.garantiedesdepots.fr/spip/index.php3?lang=en Fonds de Garantie des Dépôts (FGD)](France) * [http://www.oba.hu/index.php National Deposit Insurance Fund (NDIF)](Hungary) * [http://www.fitd.it Fondo Interbancario di Tutela dei Depositi (FITD)] (Italy) * [http://www.tmsf.org.tr/default.aspx?lang=eng Savings Deposit Insurance Fund](Turkey) Others * [http://www.kdif.kz/en Kazakhstan Deposit Insurance Fund (KDIF)] * [http://www.dic.gov.jo/ Jordan Deposit Insurance Corporation (JDIC)] Criticisms * [http://imf.org/external/np/seminars/eng/2006/mfl/pam.pdf The Moral Hazard of Implications of Deposit Insurance] [[Category:Banking]] [[Category:Types of insurance]] [[de:Einlagensicherung]] [[ja:ペイオフ (預金保護)]] [[fi:Talletussuoja]] [[sv:Insättningsgaranti]]