The case for private administration of deposit guarantee schemes

Abstract

We make the case that the responsibility for appointing board members in Deposit Guarantee Schemes (DGS) for commercial banks should be entrusted to the industry. In doing so, we challenge the position adopted by the International Monetary Fund, which has proposed public DGSs as the best practice. We lay out the comparative advantages of private over public DGS administration, and contend that the role of the government should in principle be limited to regulating DGSs specifically and financial markets in general. We conclude that the current worldwide trend towards greater involvement of government in financial regulation should not be extended to the administration of DGSs.

A Regulatory Perspective on the Actual Challenges for the European Deposit Insurance Scheme

“…Although there is a large opinion that the common or at least harmonized regulation is recommendable (Tofan and Bostan 2022), relevant literature in the field addresses the deposit insurance systems established in line with IMF work on the subject (Arda and Dobler 2022;Phillippe et al 2014) and argues against the development of "best practices" applicable to all systems (Hoelscher et al 2006). The features of each country's specific objectives in adopting a deposit insurance system is emphasized, together with the importance of incorporating the guidelines of the international expertise into domestic regulation (Hoelscher 2016) and with the need to pay attention to the country's financial system characteristics (Salama and Braga 2021). The goal of the regulation is to ensure an effective banking system that minimizes disincentives and distortions to financial sector intermediation (IADI 2010).…”