Volume II - PDF - International Association of Deposit Insurers

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•BACKGROUND DOCUMENTS• Part I: Research assessing risk, it is likely that differences in premiums will be smaller than warranted by differences in risks. The deposit insurance assessment base In order to ensure the stability of a deposit insurance funding system, deposit insurance premium assessments should adequately cover the deposit insurer’s risk exposure. The deposit insurance premium rate and the base against which the premium rate is assessed may determine these revenues. Policymakers may wish to consider an assessment base that corresponds to the maximum exposure or legal liability of the deposit insurance system. Thus, one choice for the assessment base is insured deposits. Alternatively, some deposit insurers have based their assessments on a broader measure of the institution’s total deposit liabilities. 7 Assessment and collection issues Depository institutions have an incentive to minimise their funding obligations. One way in which this is done is to minimise their assessable liabilities. When the assessment base is measured at a finite point in time, say the end of the quarter, there is an incentive for depository institutions to “sweep” deposits out of their accounts on that day. This practice would be discouraged if the assessment base was defined in terms of average daily deposits or some similar measure. For example, assessments could be determined on the basis of year-end audited financial statements. As a result, the assessment base would be correlated more closely with the risk exposure of the deposit insurer. Similar issues exist with regard to the collection of assessments. Features such as the automatic debit of a depository institution’s account can help ensure the timely collection of assessments. Nonpayment of assessments may be addressed through the same mechanisms that ensure compliance with other norms, such as assessing fines, publishing non-compliance or revoking the institution’s banking license. Non-payment of assessments also may be addressed by legislating that premium assessments have priority over other creditors or ensuring that unpaid assessments have the same status as amounts owed to the government. Conclusions Sound funding arrangements are critical to the design and operation of an effective deposit insurance system and the maintenance of public confidence. Inadequate funding can lead to significant increases in the costs associated with resolving failed depository institutions and erode public confidence. When policymakers design a funding system—whether an ex-ante, ex-post or hybrid system—they should consider the advantages and disadvantages in the context of their public-policy objectives and structure the system accordingly. Endnotes 1 The Subgroup is comprised of representatives from France (coordinator), Canada, Chile, Hungary, Italy, Mexico and the United States. Members of the Subgroup contributed information on their deposit insurance systems for this paper. Comments received from the Working Group’s consultative process also were considered in the drafting process. 2 The experience of the United States in resolving the savings-and-loan crisis during the 1980s and early 1990s provides such an example. It is discussed in Federal Deposit Insurance Corporation, History of the Eighties: Lessons for the Future, (1997). 3 Public-policy objectives for deposit insurance systems are examined in another paper. 4 This delineation between “user fees” or “mutual arrangement” is discussed in the Federal Deposit Insurance Corporation’s Deposit Insurance Options Paper, (August 2000). 5 There are factors apart from the pricing of deposit insurance that can limit the degree of risk-taking by insured depository institutions, including market and depositor discipline. These are discussed in the paper on moral hazard. 59 Guidance for Developing Effective Deposit Insurance Systems: Volume II
•BACKGROUND DOCUMENTS• Part I: Research 6 The importance of interrelationships among safetynet participants, including the deposit insurer, is discussed in the paper on that topic. 7 In the United States, the assessment base is defined as total domestic deposits, adjusted for factors such as deposit float. When an individual depositor is able to hold deposits in excess of the insurance limit in one depository institution through the use of joint or trust accounts, insured deposits are difficult to measure. 60 Guidance for Developing Effective Deposit Insurance Systems: Volume II
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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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