Chapter 11: The role of deposit insurance in financial stability: issues and options in the ASEAN+3
There have been significant changes in the accepted international practices for effective deposit insurance regimes since the 2007–09 financial turmoil. Experience in the crisis demonstrated that poorly designed deposit insurance systems played no role in maintaining stability, and were even destabilizing. This contributed to the development of a new international standard, the Core Principles for Effective Deposit Insurance Systems (the Deposit Insurance Core Principles; released in 2009 – BCBS & IADI 2009 – and subsequently endorsed as an international standard by the FSB). The Deposit Insurance Core Principles replace earlier less prescriptive guidance. Among other changes, there is a new focus on the role that deposit insurance can play in mitigating against runs and providing alternatives to taxpayer funded bailouts as part of an effective resolution regime. The Deposit Insurance Core Principles do not support coinsurance, which proved problematic in the crisis, and have a much sharper focus on the role of the deposit insurer in failure resolution, the elements of an effective resolution process, and the importance of reimbursing deposits within a time frame that does not undermine financial stability and the proper functioning of the payment system. In other national and international forums, the design features of deposit insurance systems which can contribute to financial stability and mitigate procyclicality have received additional attention since the crisis.
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