DEPOSIT INSURANCE SYSTEM

The purpose of deposit insurance systems is to protect the rights of depositors and contribute in this way to the financial stability.

The purpose of deposit insurance systems is to protect the rights of depositors and contribute in this way to the financial stability. Other objectives that are usually pursued are concerned with finding solutions upon the fall of financial institutions; managing assets and liabilities emerging after the crisis; providing incentive schemes for a better management of risks in financial institutions; and covering the costs arising from bankruptcies and the crisis with the assistance of the entire financial system. 

Considering this purposes, the functions of the institution in charge of managing the deposit insurance may vary. There may be simple payment windows of the insured amounts, or even systems with wider functions that include the evaluation of systemic risks, operative risks, bankruptcy resolution of financial institutions, and even in some cases the institution acts as banking regulator and supervisor.

 

An important function of some insurance systems is related to the liquidation of banks with difficulties or under bankruptcy proceedings. About 40% of the current systems have legal capacity to establish the liquidation of institutions. In addition, more than half of the schemes in force grant this power to the insurance organization in order to conduct the formal liquidation of those banks that are bankrupt, or to financially assist banks with difficulties. Almost half of them can acquire and/or undertake the liabilities related to the institution under liquidation process.