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Deposit Insurance around the WorldIssues of Design and Implementation$
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Asli Demirguc-Kunt, Edward J. Kane, and Luc Laeven

Print publication date: 2008

Print ISBN-13: 9780262042543

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262042543.001.0001

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Adoption and Design of Deposit Insurance

Adoption and Design of Deposit Insurance

(p.29) 2 Adoption and Design of Deposit Insurance
Deposit Insurance around the World

Aslı Demirgüç-Kunt

Edward Kane

Luc Laeven

The MIT Press

This chapter, focuses on the adoption of an explicit deposit insurance scheme (EDIS), what factors influence safety net design, and if these same factors are able to affect risk-shifting controls as well. The chapter assumes that the crafting of a country’s financial safety net is an exercise in incomplete contracting where the counterparties are major sectors of a nation’s economy. The study itself covers the deposit insurance design of over 170 countries, spanning the years 1960–2003. Overall, it is learned that democratic systems, though likely to adopt deposit insurance, are apt to design it poorly. Poor designs are also seen in systems installed during crisis circumstances and in response to external pressures to emulate other countries. All in all, it is not suggested that deposit insurance be avoided altogether, but that there are more effective substitutes that take many forms.

Keywords:   explicit deposit insurance scheme, safety net design, risk-shifting controls, democratic systems, incomplete contracting, deposit insurance

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