Deposit Insurance

Using bank level data for 80 countries in the 1988-1995 period, this paper shows that differences in interest margins and bank profitability reflect a variety of determinants: bank characteristics, macroeconomic conditions, explicit and implicit bank taxation, deposit insurance regulation, overall financial structure, and several underlying legal and institutional indicators. Controlling for differences in bank activity, leverage, and the macroeconomic environment, we find that a larger bank asset to GDP ratio and a lower market concentration ratio lead to lower margins and profits. Foreign banks have higher margins and profits compared to domestic banks in developing countries, while the opposite holds in developed countries. Also, there is evidence that the corporate tax burden is fully passed on to bank customers.

When there are widespread bank failures, deposit insurance agencies such as the Federal Deposit Insurance Corporation (FDIC) …nd it di¢ cult to sell failed banks at attractive prices. Thus, the deposit insurance fund su¤ers higher drawdowns per dollar of insured deposit when there is a systemic crisis. In turn, the actuarially-fair deposit insurance premium that is charged ex ante to banks increases in joint failure risk in addition to individual failure risk. Further, since bank closure policies re ‡ect greater forbearance in a systemic crisis, banks have incentives to herd. The incentive-e¢ cient premium that accounts for such moral hazard requires a higher charge for joint failure risk than the actuarially-fair one. Similarly, as large bank failures are more likely to be associated with asset …re sales (and regulatory forbearance), the e¢ cient premium for large banks is higher per dollar of insured deposits compared to that for small banks.

In today’s world the possibility of competition in the money market is unthinkable, the central bank regime is thought as if it were the only viable. Historically this has not been the case: Most monetary economists of the past have discussed the appropriate role of the state in the money market.  In general terms it is possible to identify certain schools of thought through time. It is the aim of this thesis to accurately describe and analyze the main points of each one and to provide a rough classification of them: 1) First of all, from times of Plato and Aristotle to the XIV century we can acknowledge the existence of two postures – Free minting, which ascribes a mere supervisory role or no role at all to the state and State Minting which pronounces  that the government has the duty and the obligation to intervene in the coinage trade; 1.1) A transitory period in the XV and XVI centuries in which the discussion is centered around the nature of “interest” and  the banking industry; 2) A period that goes from the XVIII to the XIX centuries. The role of the banking business has been accepted and the debates are conformed around the inter dependence of the monetary and financial systems.  Three different schools emerge: a Free Banking School which adheres to the principles of Laissez-faire in the money market;  a Central Banking “rule bounded” School which states that it is necessary to have a central monopolist entity that could keep the national metallic reserves by which it could provide a stable and redeemable money supply ; a Central Banking “discretional” School that manifests that money is endogenous to the economy, yet a central bank is needed for financial stability purposes.  2.1) We can identify a second transitory period in times of the Belle Époque of capitalism (1870-1930) which correctly takes the name of “monetary orthodoxy” and accepts the need of a Central Bank both to provide sound money – via a gold standard- and because its role as the lender of last resort of the economy; 3) A third period comes about the end of the great depression to our own time. First, a renewed Central Banking “discretional” School gains prominence and articulates a second role for the Central Bank: to actively pursue policy objectives (economic activity and employment). For which it is necessary to adopt a fiat monetary system;  given the 70´s stagflation problems,  a rehabilitated Central Banking “rule bounded” school emerges and pin points the importance of stabilizing consumer prices via an unchanging fiat money supply; as alternative to this school, a Modern Laissez-Faire School appears which emphasizes the possibility of free market solutions to the money market via several options  - Hayek-Klein , a fiat private competition system; Selgin-White, a modern free banking approach; and Salerno-Huerta de Soto and Greenfield-Yeager as heterodox approaches.

This paper provides a comparative analysis of the Great Depression (1929-1933) and the Great Financial Crisis (2007-2009) by contrasting the crises' main driving forces and how they relate to each other with respect to the United States. To this end, causes, consequences and measures undertaken during the crises are evaluated and dissected. The analysis reveals striking parallels between the Great Depression and the Great Financial Crisis. Causal factors in both crises were a flawed design of the banking system (unit banking, too-big-to-fail), a real estate boom and high debt burdens of both households and financial institutions, as well as pronounced economic inequality. Measures taken during each of the crises differed markedly, however. Whereas the political approach to the Great Depression was long characterised by inaction, the response during the recent crisis proved to be swift and aggressive, which prevented a repeat of the Great Depression by attenuating the immediate adverse effects on the economy. However, strong evidence exists that the response may only have deferred the adjustment process initiated by the crisis of
2007-2009. This paper presents empirical observations supporting the view that the structural problems which led to 2007-2009 are still existent today and continue to threaten financial stability.

The paper sketches the structure and recent performance of banking systems in 23 emerging economies. Establishing the true magnitude of the likely losses from bad loans is far from straightforward as eventual losses depend significantly on collateral and corporate bankruptcy arrangements. Assistance to banks involves balancing short-term concerns about avoiding bank runs and a credit crunch with medium-term concerns about limiting moral hazard and fostering
a robust banking system. Deposit insurance is examined in some detail, along with the institutional arrangements needed
to manage impaired assets such as domestic mergers, foreign takeovers and taking banks into state ownership.

A key function of a deposit insurance system is to give depositors prompt access to their insured deposits when a bank is closed. A deposit insurer’s effectiveness in providing prompt reimbursement to depositors is critical for maintaining confidence in the banking system and financial stability. In order of providing its key function, every deposit insurance system should have an effective funding. In deposit insurance systems that use ex-ante funding, funds are most commonly collected through premium assessment from the financial institutions – members of the deposit insurance system. The height of the deposit insurance premium is very important issue. If a deposit insurance premium is set to low, the fund may not collect enough means for depositors’ reimbursement. On the other site, too high deposit insurance premium will be unjustified burden to the financial institutions.
The purpose of this paper is to investigate the adequacy of the deposit insurance premium of Republic of Macedonia. The premium adequacy is analyzed through comparative analysis with the deposit insurance premium of other countries and from the target reserve ratio point of view. The comparative analysis shows that Macedonian deposit insurance premium rate is among the highest premium rates not only among the European countries but on the world level as well. The analysis from the target reserve ratio point of view shows that the target level of the Deposit Insurance Fund Skopje has been achieved since 2010, so the premium rate should be set on a level that will allow maintaining of the achieved target reserve ratio. Because of the dynamic growth of the households’ deposits maintaining the target reserve ratio of the Macedonian deposit insurance fund requires only a little lower premium rate than the regular i.e. the deposit insurance premium rate of Republic of Macedonia can be reduced to 0.65%.

It is not uncommon in the arrangement of a loan to include as part of the financial package a guarantee of the loan by a third party. Examples are guarantees by a parent company of loans made to its subsidiaries or government guarantees of loans made to private corporations. Also included would be guarantees of bank deposits by the Federal Deposit Insurance Corporation. As with other forms of insurance, the issuing of a guarantee imposes a liability or cost on the guarantor. In this paper, a formula is derived to evaluate this cost. The method used is to demonstrate an isomorphic correspondence between loan guarantees and common stock put options, and then to use the well developed theory of option pricing to derive the formula.

This paper conducts the first empirical assessment of theories concerning relationships among risk taking by banks, their ownership structures, and national bank regulations. We focus on conflicts between bank managers and owners over risk, and show that bank risk taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank. Moreover, we show that the relation between bank risk and capital regulations, deposit insurance policies, and restrictions on bank activities depends critically on each bank's ownership structure, such that the actual sign of the marginal effect of regulation on risk varies with ownership concentration. These findings have important policy implications as they imply that the same regulation will have different effects on bank risk taking depending on the bank's corporate governance structure.

The Global Financial Crisis of 2007-2009 put the spotlight on the problem of too-big-to-fail (TBTF). The research conducted in this context has, however, generally focused on the econometric aspect and the contribution of the TBTF doctrine to the financial crisis of 2007-2009, while the economic historical approach has been confined to tracing the doctrine to its first appearance. The present paper attempts to fill this gap in the academic literature by offering an explanation for why, as opposed to how, the TBTF doctrine has developed. The paper identifies the US population’s distrust and at times hostility against the prospect of concentration of power in large financial institutions as the causal factor leading to the TBTF phenomenon. Mistrust towards large financial firms led to socially non-optimal regulation, favouring a fragmented and fragile banking system based on small unit banks at the cost of more diversified branch banks. The Great Depression impressively highlighted the deep structural flaws of the US banking system. At the same time, however, it caused a shift in the public opinion, which had generally been opposed to deposit insurance, and thereby aligned the public interest with that of small banks, which would profit most from deposit insurance. The newly acquired public and political support enabled weak unit banks to lobby successfully against reforming the banking structure and instead for the adaption of federal deposit insurance. However, the Federal Deposit Insurance Corporation (FDIC) only addressed the symptoms of the weak banking industry but not its causes. Moreover, FDIC policies have generally favoured creditors at large banks, which ultimately led to the TBTF doctrine, providing banks with a non-technical incentive to grow in size in order to gain TBTF protection. Initially aimed at preserving the US financial landscape based on small unit banks, the FDIC as the main conduit for TBTF rescues thus became the main driver for big bank corporate welfare. Deposit insurance gave rise to TBTF and, at the same time, put small banks deemed “too-small-to-safe” at a competitive disadvantage, further accelerating the trend towards increasingly large and complex banks.

The economic unification of Europe is taking a long time.  It has become more challenging with the advent of financial integration and the single currency. Under the pressures of globalisation and, as a necessary by-product, of increased competition, the risk profile of financial systems has dramatically changed for the worse. In Europe, soft compromises, which the principle of subsidiarity entails,

This paper analyzes how access to deposit insurance affects the common stock returns of financial institutions during periods of financial distress. During periods of distress the definition of insolvency used by insuring agencies may be modified to avoid a substantial number of bank failures. These modifications can increase the value of future deposit guarantees and affect the behavior of stock returns of banks and S&Ls. This hypothesis is examined using S&L data for the 1976 through 1983 period. Modification of insolvency rules applied to S&Ls appears to have reduced significantly the co-movement of S&L stock returns with S&L portfolio holdings.

Various mechanisms of prudential oversight over the financial system can help to make an economy more resistant to contagious financial shocks. Better and more realistic
supervision of institutions is needed both in capital-importing and capital-exporting countries. This paper examines  international rules for capital ratios, how far implicit and explicit guarantees undermine financial agents’ and institutions’ sense of responsibility for their own decisions, what can be done to strengthen the operation of
market discipline for banks, and the need to develop deeper
financial markets so that the concentration of the risks in the banking system can be diluted. Given differences in country circumstances, the focus of international cooperation
should be to ensure that generally agreed principles needed to
ensure strong banking systems are applied worldwide.

The object of this paper is to survey and synthesize the literature on the regulation of financial intermediaries, including the theoretical framework and also the applied literature on specific regulations such as deposit insurance, capital controls, line of business restrictions, etc.

What are the relative advantages and disadvantages of bank-based financial systems (as in Germany and Japan) and market-based financial systems (as in England and the United States). Does financial structure matter? In bank-based systems banks play a leading role in mobilizing savings, allocating capital, overseeing the investment decisions of corporate managers, and providing risk management vehicles. In market-based systems securities

This paper uses our new database on bank regulation and supervision in 107 countries to assess the relationship between specific regulatory and supervisory practices and banking-sector development, efficiency, and fragility. The paper examines: (i) regulatory restrictions on bank activities and the mixing of banking and commerce; (ii) regulations on domestic and foreign bank entry; (iii) regulations on capital adequacy; (iv) deposit insurance system design features; (v) supervisory power, independence, and resources, (vi) loan classification stringency, provisioning standards, and diversification guidelines; (vii) regulations fostering information disclosure and privatesector monitoring of banks; and (viii) government ownership. The results, albeit tentative, raise a cautionary flag regarding government policies that rely excessively on direct government supervision and regulation of bank activities. The findings instead suggest that policies that rely on guidelines that (1) force accurate information disclosure, (2) empower private-sector corporate control of banks, and (3) foster incentives for private agents to exert corporate control work best to promote bank development, performance and stability.

This study examines the capital structure and debt maturity choices of firms in a crosssection of 39 developed and developing countries, focusing on the effect of the countries' public policies and institutional structures. Our analysis suggests that a country's taxation and inflation policies as well as its legal institutions have an important effect on how its corporations are financed. Specifically, the preferential tax treatment of dividends is associated with lower leverage, high inflation is associated with lower leverage and the use of short-term debt and corruption increases financial leverage and reduces the maturity structure of the debt. However, controlling for corruption, the legal system per se -i.e., whether the country adopts a common law system -only influences the debt maturity decision. In addition, the financial institutions that supply capital influence the type of capital that is used. In particular, countries with large amounts of bank deposits tend to have shorter debt maturities and countries with a greater presence of other institutional investors are less levered and have longer debt maturities. We also find that the presence of information intermediaries is associated with lower leverage and the use of trade credit, highlighting their role in facilitating information dissemination.

Using bank level data for 80 countries in the 1988-1995 period, this paper shows that differences in interest margins and bank profitability reflect a variety of determinants: bank characteristics, macroeconomic conditions, explicit and implicit bank taxation, deposit insurance regulation, overall financial structure, and several underlying legal and institutional indicators. Controlling for differences in bank activity, leverage, and the macroeconomic environment, we find that a larger bank asset to GDP ratio and a lower market concentration ratio lead to lower margins and profits. Foreign banks have higher margins and profits compared to domestic banks in developing countries, while the opposite holds in developed countries. Also, there is evidence that the corporate tax burden is fully passed on to bank customers.

In a sample of 335 commercial banks, we do not detect a systematic effect on bank values from derivatives use in either the high growth period of 2003–2005 or the low growth period of 2007–2009. These findings apply to all types of derivatives including credit default swaps. Our results suggest that banks take a more balanced approach and restrict their derivative activities to providing derivative services for customers and risk management. We also find that the market disciplined banks significantly for taking TARP funds, indicating that receiving TARP funds was a signal that the banks were financially distressed. Lastly, we cannot discern valuation effects resulting from derivatives use even in large and poorly capitalized banks that are more likely to take risk-shifting opportunities. Collectively, we find no compelling evidence supporting the widespread allegation that derivatives use increased banks’ speculating behaviors and significantly contributed to the loss of value during the subprime mortgage crisis.

Option-based models of mortgage default posit that the central measure of default risk is the loanto-value (LTV) ratio. We argue, however, that an unrecognized problem with extending the basic option model to existing multifamily and commercial mortgages is that key variables in the option model are endogenous to the loan origination and property sale process. This endogeneity implies, among other things, that no empirical relation may be observed between default and LTV. This is because lenders may require lower LTVs in order to mitigate risk, so mortgages with low and moderate LTVs may be as likely to default as those with high LTVs. Mindful of this risk endogeneity and its empirical implications, we examine the default experience of 9,639 multifamily mortgage loans securitized by the Resolution Trust Corporation (RTC) and the Federal Deposit Insurance Corporation (FDIC) during the period 1991!1996. The extensive nature of the data supports multivariate analysis of default incidence in a number of respects not possible in previous studies.

In Sveinbjörnsdóttir v. Government of Iceland, the EFTA Court extended the EU principle of state liability from EU law to the European Economic Area. Consequently, EFTA States are obliged to compensate individuals for damage caused by breaches of EEA law for which they are responsible. The EFTA Court has affirmed that the same three conditions apply to state liability claims than in EU law, but with some possible modifications. Section 2 addresses the justifications for state liability in the EEA and Section 3 explores the criteria for establishing state liability. Section 4 looks at a contentious example of the lack of state liability – the Icesave I case before the EFTA Court. In this landmark judgement, the EFTA Court affirmed that the State of Iceland was not liable for deposits in failed credit institutions, provided the state established a deposit insurance scheme in accordance with EU Law. Iceland was under no obligation to use taxpayer funds to recapitalise the Icelandic deposit insurance scheme that the collapse of the Icelandic banking system in October 2008 overwhelmed. Deposit insurance was a liability of the Icelandic banks, and not of the State of Iceland. Even though the Court affirmed the lack of Iceland's liability under EEA law in the instant case, its obiter dictum does not detract from the principle of state liability in EEA law.

working paperS are obtainable from Sveriges riksbank • information riksbank • Se-103 37 Stockholm fax international: +46 8 787 05 26 telephone international: +46 8 787 01 00 ABSTRACT: We study the specific corporate governance problems of central banks in their complex role of inflation guardians, bankers' banks, financial industry regulators/supervisors and, in some cases, competition authorities and deposit insurance agencies. We review the current institutional arrangements of a number of central banks, e.g. formal objectives, ownership, board and governor appointment rules, term limits and compensation, using both existing surveys and newly collected information. Research on central bank governance appears to have focused almost only on their monetary policy task. As shown by the sub-prime loan market turmoil, central banks play a crucial role in financial markets not only in setting monetary policy, but also in ensuring their stability. In this paper, we contrast the current governance practices at central banks with the structures suggested in the corporate governance literature. Our analysis highlights a number of specific issues that appear to have been unsatisfactorily addressed by existing research, such as the incentive structure for governors and board members, the balance between central banks' multiple objectives and the need for term limits.

Against a background ofan unprecedented number of commercial bank failures, the BankingAct of 1933 laid out the basic framework ofmodern banking regulation in the United States. Among its other provisions, the legislation established federal deposit insurance, reaffirmed the restrictions on branch banking imposed in 1927 by the McFadden Act, authorized the Federal Reserve to set ceilings on the interest ratespayable

The object of this paper is to survey and synthesize the literature on the regulation of financial intermediaries, including the theoretical framework and also the applied literature on specific regulations such as deposit insurance, capital controls, line of business restrictions, etc.

Getting the framework right for deposit insurance is a crucial prerequisite. Without it much of the more detailed discussions about what should be insured and how it should be financed can be decidedly second order, even though they tend to be discussed first and are the focus of the legislation in the EU, for example. The International Association of Deposit Insurers is therefore to be congratulated on recognising this and producing a discussion paper on the topic (IADI, 2006). However, the success of the system depends on both its structure and its operation and these comments reflect on both. There are accepted governance structures for private companies, public sector agencies - including central banks - and not-for-profit organisations. To a large extent a suitable governance framework for deposit insurers would simply draw on these accepted structures. It is 'merely' necessary to set out the features that situate deposit insurance in the spectrum and that make it unu...

We investigate the relationship between banks' capitalization and risktaking behavior. The conventional wisdom is that well-capitalized banks are less inclined to increase asset risk, because the option value of deposit insurance decreases with capitalization. There are, however, at least three shortcomings in the existing theories that cast doubt on the validity of the conventional wisdom. First, many studies neglect agency problems arising from the separation of management and ownership. Second, past studies rely on limited risk-return profiles of the asset choice set and do not consider profiles in which higher risk is associated with higher return.

Using bank level data for 80 countries in the 1988-1995 period, this paper shows that differences in interest margins and bank profitability reflect a variety of determinants: bank characteristics, macroeconomic conditions, explicit and implicit bank taxation, deposit insurance regulation, overall financial structure, and several underlying legal and institutional indicators. Controlling for differences in bank activity, leverage, and the macroeconomic environment, we find that a larger bank asset to GDP ratio and a lower market concentration ratio lead to lower margins and profits. Foreign banks have higher margins and profits compared to domestic banks in developing countries, while the opposite holds in developed countries. Also, there is evidence that the corporate tax burden is fully passed on to bank customers.

Deposit insurance is a crucial regulation for banks which are trust the institutions. This regulation came up with the Great Depression in the United States, our country has also adopted in 1980 with the world. Deposit insurance with a legal basis to be connected to the trust factor, may lead positive as well as negative consequences for banks. The importance of deposit insurance regulation has increased. International Association of Deposit Insurers which has 79 members published Core Principles for Effective Deposit Insurance Systems in 2009. And then in 2014, these principles were decreased to 16 items. In this paper, It is going to be analyzed deposit insurance system from 1983 to the present in Turkey and to be controlled accornance to the Core Principles For Effective Deposit Insurance Systems. The purpose of this study is to examine of whether these principles of deposit insurance is appropriate for Turkey.

This paper aims at empirically investigating the role of moral hazard in the e¢ ctivity of deposit insurance in achieving banking stability. If the negative e¤ect of deposit insurance on banking stability is through moral hazard, then deposit insurance will be associated with banking insolvency and credit crunch more than with bank runs. To test this hypothesis, we compute measures of these two types of banking instability. We …nd that deposit insurance per se has no signi…cant e¤ect either on bank insolvency and credit crunch or on bank runs. However, when the deposit insurance is coupled with an increase in credit to private sector, it has a positive and signi…cant e¤ect on bank insolvency and credit crunch but not on bank runs.

We study whether bank ownership is related to bank efficiency in Russia. We find that foreign banks are more efficient than domestic private banks and -surprisingly -that domestic private banks are not more efficient than domestic public banks. These results are not driven by the choice of the production process, the bank's environment, the management's risk preferences, the bank's activity mix, size or the econometric approach. The evidence in fact suggests that domestic public banks are more efficient than domestic private banks and that the efficiency gap between these two types of banks is not lower after the introduction of deposit insurance in 2004. This may be due to increased switching costs or to the moral hazard effects of deposit insurance. The policy conclusion is that the efficiency of the Russian banking system may benefit more from increased levels of competition and higher access of foreign banks than from bank privatization.

Several studies indicate that financial liberalization contributes to the likelihood of a financial crisis. We focus on banking crises and argue that they are most likely to occur after an intermediate degree of liberalization. Using a recently updated dataset for financial reforms in 48 countries between 1973 and 2005, we find an inverted U-shaped relationship between liberalization and the likelihood of crisis. We ask whether the relationship remains when institutional characteristics of countries and dynamic effects of liberalization are considered. The empirical results indicate that the relationship between liberalization and banking crises depends strongly on the strength of capital regulation and supervision. With very weak regulation and supervision, the probability of banking crises is increasing with liberalization but this relationship is reversed as regulation and supervision become stricter. The most important type of liberalization in relation to banking crises seems to be behavioral (a relaxation of interest and credit controls). A policy implication is that positive growth effects of liberalization can be achieved without increasing the risk of a banking crisis if appropriate institutions are developed. n We would like to thank an anonymous referee and our discussant, Jennifer Huang, as well as other participants in the 'Global Market Integration and Financial Crises,' July 12-13, 2009, for useful comments. We are also grateful to Arthur Denzau, Tripon Phumiwasana, and Thomas D. Willett for comments on earlier drafts. The views expressed in this paper are those of the authors and do not necessarily represent those of the Bank of Thailand.

In 2015, China started allowing qualified investors to set up privately funded commercial banks, which might be the largest change in China’s state-dominated banking sector in the recent decade. The privately-owned banks are said to break the monopoly of existing state-owned banks, as well as providing more loans to China’s money-starved entrepreneurs who are underserved by state-owned lenders. This article aims to introduce the latest development of privately-owned banks in China, and analyse some potential challenges faced by these newly established banks and the relevant regulatory issues.

The current system of deposit insurance has a basic structural problem because *We thank the Carnegie-Rochester Conference participants, and especially 1 For a general overview of deposit-insurance reform, see Barth and Brumbaugh (1992), Barth, Brumbaugh, and Litan (1992), and Brumbaugh (1993). The specific analytical framework of our paper is developed in Merton (199213) Merton and Bodie (1992a,b and c). In the banking literature, the analytical approaches of Black (1985), Black, Miller, and Posner (1978), Gorton and Pennacchi (1992a), and Pierce (1991) are most closely aligned with the development here. 2We have discussed elsewhere deposit insurance as it relates to thrifts. See Merton and Bodie (1992b,c, Section 6). More generally, see J. Barth (1991) and Brumbaugh (1988). 3The thrust of policymaker thinking is often reflected in the titles given to government reports. Thus, the U.S. Treasury entitled its February 1991 detailed proposals for financial system reform, Modernizing the Financial System: Recommendations for Safer, More Competitive Banks. *As here, Diamond and Dybvig (1986) f ecus on the functions of banks. They, however, identify three core functions: (i) asset services, which is making loans; (ii) liability services, which is transaction clearing, providing currency and other means of payment (checks, cash cards); (iii) transformation services, which creates liquidity by buying illiquid loans and issuing liquid deposits. The role of banks in liquidity creation is discussed in Section 3. 5According to the Federal Reserve, at the end of 1990 the breakdown of the loan portfolio of U.S. commercial banks was: commercial and industrial loans 30%, real-estate loans 37%, consumer loans 19%, all other 14%. 'jFor discussion of the role of banks in the intermediation of asymmetric information, see Diamond (1984), Fama (1985), and James (1987). 7We use the term "opaque" here in the sense developed in depth by Ross (1989). "The trend in the recent past is for banks to invest in marketable debt instruments including securitized loans of other banks. To the extent they do so, they are becoming less like the institution we define as commercial banks. The bank assets that lend themselves to being securitized are the ones that are least opaque, such as credit-card and automobile loans. Corporate, commercial real-estate, and sovereign loans are not generally acceptable for securitization and, therefore, tend to stay on the balance sheet of the firm. For an extensive discussion of asset securitization, see the Fall 1988 issue of Journal of Applied Corporate Finance.

This paper analyzes the role of moral hazard and corporate governance structures in bank failures within the context of the 2000-2001 currency and financial crises experienced in Turkey. The findings suggest that poor performers with lower earnings potential and managerial quality, and hence lower franchise value, were more likely to respond to moral hazard incentives provided by the regulatory failures and full coverage deposit insurance system. The findings also suggest that ownership and control variables are significantly related to the probability of failure. Privately owned Turkish commercial banks were more likely to fail. Moreover, among the privately owned Turkish commercial banks, the existence of family involvement on the board increased the probability of failure.

Explicit deposit insurance has been spreading rapidly in recent years, even to countries with low levels of financial and institutional development. Economic theory indicates that deposit-insurance design features interact--for good or ill--with country-specific elements of the financial and governmental contracting environment. This paper documents the extent of cross-country differences in deposit-insurance design and reviews empirical evidence on how particular design

The role of deposit insurance and the design features of deposit insurance systems are undergoing important changes in light of the 2008/9 global crisis. Changes were made in order of restoring the public confidence in the banking system, stopping widespread bank runs during the crisis and increasing the stability of the financial system. The purpose of this paper is to present the changes of the deposit insurance among the countries in the world as a result of the financial crisis of 2008. Three main changes will be observed: the raise in the maximum level of deposit insurance coverage, the elimination of the coinsurance and changes in the speed of depositor’s payout. Effects of these changes will be analyzed, and special emphasis will be given on the deposit insurance system of Republic of Macedonia.
The changes in deposit insurance can affect the moral hazard problem, the premium assessment base and the potential financial commitment of the deposit insurance institution. Changes in the deposit insurance regulative of Republic of Macedonia did not affect the premium assessment base, but the potential financial obligation of the deposit insurance institution was increased. Regarding the moral hazard problem mitigation, Deposit Insurance Fund - Skopje should consider risk-based premium introduction.

In 2007 Britain experienced its first run on a bank of any macroeconomic significance since 1866. This was not dealt with by the method that had maintained banking stability for so long: letting the bank fail but supplying abundant liquidity to the markets to prevent contagion. In this paper the authors examine why that traditional solution was not used and

The literature on deposit insurance tends to be mostly confined to a discussion of the reform proposals and risk-related premium assessment methodologies. The theoretical explanation of the alternatives to the major components of a deposit insurance scheme is sketchy. Comparisons on the international practice of deposit insurance are not extensive and comprehensive enough. To fill the gaps in the literature, this paper examines the theoretical foundations of the key issues of a deposit insurance scheme, provides a critical comparison on the international practice of deposit insurance, and makes suggestions on how a complete deposit insurance scheme can be properly designed and implemented.

We ask how deposit insurance systems and ownership of banks affect the degree of market discipline on banks' risk-taking. Market discipline is determined by the extent of explicit deposit insurance, as well as by the credibility of non-insurance of groups of depositors and other creditors. Furthermore, market discipline depends on the ownership structure of banks and the responsiveness of bank managers to market incentives. An expected U-shaped relationship between explicit deposit insurance coverage and banks' risk-taking is influenced by country specific institutional factors, including bank ownership. We analyze specifically how government ownership, foreign ownership and shareholder rights affect the disciplinary effect of partial deposit insurance systems in a cross-section analysis of industrial and emerging market economies, as well as in emerging markets alone. The coverage that maximizes market discipline depends on country-specific characteristics of bank governance. This "risk-minimizing" deposit insurance coverage is compared to the actual coverage in a group of countries in emerging markets in Eastern Europe and Asia. JEL Classification: G21; G28; G32

In a general equilibrium model with risk neutral and risk averse agents, we show that if banks issue both demand deposits and equity, then free banking is run-proof and ecient. In particular, we obtain the ®rst best insurance solution if there is adequate risk neutral capital. If sucient risk neutral capital is unavailable, then a partial suspension of convertibility is optimal. In general, therefore, policies like capital adequacy norms and deposit insurance are neither necessary nor desirable. Ó