Volume II - PDF - International Association of Deposit Insurers

•BACKGROUND DOCUMENTS•
Part II: Outreach
Executive Summary
The conference brought together practitioners of deposit insurance who were also members of the
Working Group on Deposit Insurance (WGDI) of the Financial Stability Forum (FSF) and a distinguished
panel of academic, regulatory and industry discussants. The WGDI presented four draft issue papers that
it regards as crucial to the determination of the guidance that it had committed to offer to the FSF by late
summer 2001 to aid countries that were considering initiating or revising a system of deposit protection.
The papers discussed (1) public policy objectives for deposit insurance, (2) situational analysis of a country’s
readiness for deposit insurance, (3) options for containing moral hazard, and (4) issues relating to the
transition from blanket guarantees to limited coverage.
In their comments, the discussants lauded the WGDI on its willingness to take on an important, but
extremely complex, subject. The discussants noted that the development of guidance on deposit insurance
was made more difficult by the many tradeoffs involved and by the interface between related economic and
political constraints. The discussants complimented the presenters on their comprehensive listing of
relevant issues in each of the four papers, but particularly in the paper on identifying deposit insurance
objectives and the one on options for containing moral hazard.
The discussants made a number of suggestions for improving the papers. First, several panel members
questioned the WGDI’s interpretation of two aspects of its mandate. First, the Working Group stated that
it did not intend to set standards or develop best practices. It asserted that each country’s circumstances
were unique and that countries must choose their own path toward setting and achieving their deposit
insurance objectives. Messrs. Eisenbeis and Evanoff disagreed and suggested that the WGDI needed to do
more than offer a list of alternatives for countries to choose from at will. Instead, more specific guidance
was needed in the form of a blueprint for one or more integrated deposit insurance systems.
In addition, Mr. Eisenbeis and Professor Roberts, through Mr. Bliss, were concerned about the charge that
the Working Group was working under—to give guidance only on how to fashion an explicit system of
deposit insurance. The three discussants considered that it was essential to ask first whether explicit coverage
was optimal and to question whether implicit insurance would be preferable when necessary preconditions
for successful explicit coverage had not been met. 1
Messrs. Eisenbeis, Evanoff, and Hunter, and Professors Kaufman, Kroszner, and Pennacchi observed that
the Working Group’s recommendations were very general and they urged it to give more emphasis to
concrete and definitive advice so that those putting a deposit insurance system in place would know specifically
what features might suit their country’s needs. Messrs. Eisenbeis and Evanoff also called on the group
to identify the key elements that would guide a country in selecting among the many paths to deposit protection
that were available. Professor Kaufman observed that giving specific advice would become easier if
it were grounded more on academic research, both theoretical and empirical. Professors Kroszner and
Roberts and Messrs. Bliss and Evanoff agreed with Professor Kaufman that the WGDI needed to pay more
attention to previous research findings on deposit insurance.
Professors Kaufman, Kroszner, Pennacchi and Roberts and Messrs. Bliss and Tannenbaum called on the
Working Group to give greater emphasis to private market forces in disciplining the markets and replacing
the government’s role in achieving the objectives attributed to deposit insurance, particularly in protecting
small depositors and promoting financial stability.
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Guidance for Developing Effective Deposit Insurance Systems: Volume II