Changes to deposit insurance as part of comprehensive

Emergency Policy Measures
The policy interventions
weren't effectiv...
Country
Choices

Policy
Measures

Target

Problem

Expansion of retail deposit insurance

Lack of Confidence
Lack of confi...
Emergency Policy Measures

Europe
United States
• On 5 October Treasury establishes two-year guarantee program for money
•...
Emergency Policy Measures
Raising the maximum levels of coverage
Reducing the role of co-insurance arrangements

Taking st...
Raising the maximum levels of coverage
Reducing the role of co-insurance arrangements
Taking steps to ensure timely access to insured deposits

Bank Failure [Insolvency]
Bankruptcy
Procedures

Very Slow

Effi...
Bankruptcy Procedures
On-Time Access

Late Time

Limitation
Extending coverage to a wider range of deposits
Emergency Policy Measures
Raising the maximum levels of coverage
Reducing the role of co-insurance arrangements

Taking st...
It may not have been clear how the (explicit or implicit)
unlimited coverage would relate to the deposit insurance
arrange...
Challenges raised by recent policy measures
Moral

[

]
Hazard
Funding Issues

Issues raised by the coexistence of differe...
Funding Issues
Overlap of deposit insurance and lender-of-last-resort functions

Issues raised by expansion of guarantees and introductio...
Banking Crises Worldwide
Deposit Insurance and Related Financial Safety Net Aspects
Deposit Insurance and Related Financial Safety Net Aspects
Deposit Insurance and Related Financial Safety Net Aspects
Deposit Insurance and Related Financial Safety Net Aspects
Deposit Insurance and Related Financial Safety Net Aspects
Deposit Insurance and Related Financial Safety Net Aspects
Deposit Insurance and Related Financial Safety Net Aspects
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Deposit Insurance and Related Financial Safety Net Aspects

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Deposit Insurance and Related Financial Safety Net Aspects

  1. 1. Changes to deposit insurance as part of comprehensive Emergency Policy Measures The policy interventions weren't effective Emergency Policy Measures Addressing bank undercapitalization by injecting capital or purchasing specific The bankruptcy assets ensuring continued bank funding through the provision of guarantees Bank run (either retail or wholesale)
  2. 2. Country Choices Policy Measures Target Problem Expansion of retail deposit insurance Lack of Confidence Lack of confidence in banks on part of general public Expanded retail deposit insurance Uncertainty on part of banks about peers Guarantee of wholesale liabilities Frozen Credit Market Interbank market not functional Purchase assets including ‘toxic’ bank asset Banks undercapitalized Bank capital injections
  3. 3. Emergency Policy Measures Europe United States • On 5 October Treasury establishes two-year guarantee program for money •United States2008, the German governmenttemporarily guarantees allprivate On 30 September, the Irish government issued a guarantee on every deposits, deposit account; “the state guarantees private deposits in Germany” according to banks, covered bonds, senior market fund investors, and dated subordinated debt held in the six biggest its spokesman. legislation also temporarily allows the United States deposit with guarantee scheduled to terminate in September 2010. • The new • On 6 October, the (FDIC) to borrow unlimited that a blanket guarantee has been • Several agency Government of Iceland stated funds from the Treasury. insurancecountries, including Belgium, Greece, Luxembourg, Netherlands, extended covering all deposits in domestic commercial and savings banks and their Portugal and Spain House of deposit insurance to for 100,000. • On 3 October, theeach raiseRepresentatives votedEUR the Emergency branches in Iceland. • On 3 October, the Financial 2008, which included the raising of the effect on announced Economic Stabilization Act ofStability Authority put forward athat (withceilingbank • On 20 October 2008, the Austrian National Council 100-billion-euro from Tuesday 7which included temporarily to USD limit changesdepositor per to the FDIC deposit insurance USD 100,000providing unlimited deposit insurance bank rescue package, October) the deposit protection 250,000 per to GBP 50,000 from GBP 35,000 per until guarantees on loans between chancellor of the on a temporary basis person per authorized bank. Thebanks. From 2010, insurance savers and undertaking legal end 2009. exchequerwould have a by newspapers toinjects USD statements suggesting that • On 23 November, the US of EUR 100,000. on deposit is reported limit government have made 20 billion of cash into the government might be government implicit 100 was raising its bank on all Citigroup in exchange for a USD 27an announced it per cent guaranteedeposit to • On 5 November, the Swiss offering billion preferred equity stake, and agrees guaranteeinloans andfrom 30,000on that has not made a legally binding pledge. deposits failing securities Swiss francs.. guaranteetoa100,000 bank, although he company’s books worth USD 306 billion.
  4. 4. Emergency Policy Measures Raising the maximum levels of coverage Reducing the role of co-insurance arrangements Taking steps to ensure timely access to insured deposits Extending coverage to a wider range of deposits
  5. 5. Raising the maximum levels of coverage
  6. 6. Reducing the role of co-insurance arrangements
  7. 7. Taking steps to ensure timely access to insured deposits Bank Failure [Insolvency] Bankruptcy Procedures Very Slow Efficient Resolution Speed Specialist expertise The interest of depositors
  8. 8. Bankruptcy Procedures On-Time Access Late Time Limitation
  9. 9. Extending coverage to a wider range of deposits
  10. 10. Emergency Policy Measures Raising the maximum levels of coverage Reducing the role of co-insurance arrangements Taking steps to ensure timely access to insured deposits Extending coverage to a wider range of deposits
  11. 11. It may not have been clear how the (explicit or implicit) unlimited coverage would relate to the deposit insurance arrangements that were already in place.
  12. 12. Challenges raised by recent policy measures Moral [ ] Hazard Funding Issues Issues raised by the coexistence of different levels of depositor protection Addressing the root causes of confidence problems may become even more crucial
  13. 13. Funding Issues
  14. 14. Overlap of deposit insurance and lender-of-last-resort functions Issues raised by expansion of guarantees and introduction of new ones during Fall 2008 Timely opportunity to review the operation of financial safety nets
  15. 15. Banking Crises Worldwide

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