Volume II - PDF - International Association of Deposit Insurers

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•BACKGROUND DOCUMENTS• Part I: Research Discussion Papers Powers Abstract: As a preliminary matter, a deposit insurer needs only those powers and authorities necessary to fulfil its public-policy objectives effectively. Consequently, one must first determine the specific mandate, roles and responsibilities of the organisation responsible for deposit insurance. Is the deposit insurer’s role limited to reimbursing depositors after an insured institution is closed or does it have a broader function If it has a broader function, does it include intervention and resolution responsibilities, or the liquidation of assets of failed institutions Finally, is the deposit insurer charged with directly supervising or regulating the institutions that it insures, or does it have some input into the supervisory and regulatory processes These questions must be answered before it is possible to determine the necessary powers for a deposit insurer to operate effectively. In addition, it is necessary to consider the assigned responsibilities of other safety-net participants so as to avoid overlapping or conflicting responsibilities. This paper discusses those powers that are necessary for a deposit insurer to fulfil its public-policy objectives. In addition, the paper discusses the fundamental powers related to deposit insurance systems and examines factors and considerations that can influence decisions on the granting of specific powers to deposit insurers. The full panoply of powers that can be provided to deposit insurers will be explored briefly. 99 Guidance for Developing Effective Deposit Insurance Systems: Volume II
•BACKGROUND DOCUMENTS• Part I: Research As a preliminary matter, a deposit insurer needs only those powers and authorities necessary to fulfil its public-policy objectives effectively. Consequently, one must first determine the specific mandate, roles and responsibilities of the organisation responsible for deposit insurance. 1 Is the deposit insurer’s role limited to reimbursing depositors after the supervisory authorities close an insured institution or does it have a broader function If it has a broader function, does it include intervention and resolution responsibilities, or the liquidation of assets of failed institutions Finally, does the deposit insurer directly supervise or regulate the institutions that it insures, or does it have some input into the supervisory and regulatory processes These questions must be answered before determining the powers necessary for a deposit insurer to operate effectively. It also is necessary to consider the assigned responsibilities of other safety-net participants so as to avoid overlapping or conflicting responsibilities. This paper, which was prepared by the Subgroup on Powers, 2 discusses those powers that are necessary for a deposit insurer to fulfil its public-policy objectives effectively. It examines the factors and considerations that can influence decisions on the granting of specific powers to deposit insurers. The full panoply of powers that can be provided to deposit insurers will be explored briefly. Much of the material presented here is covered in greater detail in the other papers prepared by the Working Group on Deposit Insurance; where appropriate, those papers are cross-referenced. Basic Powers and Legal Authorities The responsibilities and associated powers of deposit insurers vary greatly and depend, to a large extent, on the public-policy objectives established for them by law or contract. Some deposit insurers serve only to reimburse depositors once an insured institution has been closed (“paybox” systems), while others serve as the receiver and liquidator of the assets of failed institutions. Still others have the role of minimising risk to the deposit insurer (“risk minimisers”) and, in a few cases, some directly supervise the institutions they insure. As a result, there is no single set of optimal powers or authorities suitable for all deposit insurers. At a minimum, however, all deposit insurers need certain basic powers and legal authorities to ensure that they can meet their obligations to depositors in a timely fashion and thus help to maintain public confidence in the financial system. A paybox system requires appropriate authority, including, access to deposit information and access to funding, for efficient reimbursement of depositors when an institution fails. In addition to these authorities, a risk minimiser requires the authority to gather information—either directly from insured institutions or from the supervisory authority—to assess risks, the authority to limit risks through various means, and the flexibility to access needed funding sources. The deposit insurer may exercise these authorities directly, or, alternatively, mechanisms may be instituted to ensure that the supervisor is responsive to the deposit insurer’s needs. Operational issues Organisational structure Regardless of the scope of a deposit insurer’s responsibilities, there are certain fundamental operational issues that must be addressed in any law creating a deposit insurer. First, it must be determined whether the deposit insurer should be established as a separate governmental entity, a department of another government entity, a private entity with government backing, or as a completely private entity. In determining the entity’s basic structure, it is important to maintain an appropriate balance between the need for the deposit insurer to be independent and for the insurer to be accountable for its actions. Second, it is important to stipulate the duties and responsibilities of the deposit insurer vis-a-vis the central bank and any other financial institution supervisors or regulators. Particularly in times of crisis, it is essential that the roles and responsibilities of all parties be clearly defined to 100 Guidance for Developing Effective Deposit Insurance Systems: Volume II
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Volume II FINANCIAL STABILITY FORUM
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III Feedback
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•BACKGROUND DOCUMENTS• Part III
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FINANCIAL STABILITY FORUM Guidance
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