"Explicit deposit insurance tends to be detrimental to bank stability-- the more so where bank interest rates are deregulated and the institutional environment is weak"--Cover.

This study analyzes panel data for 61 countries during 1980–97 and concludes that explicit deposit insurance tends to be detrimental to bank stability, the more so where bank interest rates are deregulated and the institutional environment is weak. Also, the adverse impact of deposit insurance on bank stability tends to be stronger when the coverage offered to depositors is extensive, when the scheme is funded, and when it is run by the government rather than by the private sector.

This study analyzes panel data for 61 countries during 1980–97 and concludes that explicit deposit insurance tends to be detrimental to bank stability, the more so where bank interest rates are deregulated and the institutional environment is weak. Also, the adverse impact of deposit insurance on bank stability tends to be stronger when the coverage offered to depositors is extensive, when the scheme is funded, and when it is run by the government rather than by the private sector.

Explicit deposit insurance tends to be detrimental to bank stability - the more so where bank interest rates are deregulated and the institutional environment is weak.Based on evidence for 61 countries in 1980-97, Demirguc-Kunt and Detragiache find that explicit deposit insurance tends to be detrimental to bank stability, the more so where bank interest rates are deregulated and the institutional environment is weak.The adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors, and where the scheme is funded and run by the government rather than the private sector.This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to study deposit insurance. The study was funded by the Bank's Research Support Budget under the research project Deposit Insurance: Issues of Principle, Design, and Implementation (RPO 682-90). The authors may be contacted at [email protected] or [email protected].

Federal deposit insurance in Canada is provided by the Canada Deposit Insurance Corporation (CDIC), created by an act of Parliament in 1967 to guarantee certain types of deposits of member institutions up to a limit currently set at $60,000 for each account. This document examines this question and looks at financial system stability and deposit insurance in Canada. More precisely, it focuses on efficiency and political explanations for deposit insurance; the banking system before 1967; the effect of deposit insurance on the banking system; and regulations and depositor compensation.

Deposit insurance was initiated in the 1930s to help restore confidence in the banking system after thousands of banks failed and millions of dollars in deposits were lost during the Great Depression. In 1990, the federal government insured about $3 trillion in deposits in the nation1s banks, thrifts, and credit unions and has to date fulfilled its goal of maintaining the stability of the banking system. This report discusses issues associated with reforming the deposit insurance system, specifically changes to the system that will promote a safe, sound, and stable banking industry. Charts and tables.