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The Problem of Moral Hazard and Effects of Deposit Insurance Project

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  • Sophio Khundadze

    (International Black Sea University)

Abstract

The paper focuses on the significance of deposit insurance program for the financial system stability and smooth operation of the economy. The issue is very substantial for Georgian banking system, which remains to be the only industry all over the post Soviet area without deposit insurance mechanism in place. Georgian banking system lacks the confidence level of its customers, that probably can be restored by imposition of deposit insurance program. The article compares discussions of different experts and their empirical studies arguing whether or not deposit insurance undermines or promotes banking stability. But the experience shows that it, if carefully and properly designed, facilitates additional economic stability, though the last attempt to implement the program in Georgia failed. The article presents the terms of the project elaborated by the National Bank of Georgia and Financial Committee, and gives some proposals needed to perfect the program taking into consideration the recommendations of different experts.

Suggested Citation

  • Sophio Khundadze, 2009. "The Problem of Moral Hazard and Effects of Deposit Insurance Project," IBSU Scientific Journal, International Black Sea University, vol. 3(2), pages 89-114.
    • Handle: RePEc:ibl:journl:v:3:y:2009:i:2:p:89-114
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    File URL: https://journal.ibsu.edu.ge/index.php/ibsusj/article/download/81/126
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    Citations

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    Cited by:

    1. Mihaela Tofan, 2022. "A Regulatory Perspective on the Actual Challenges for the European Deposit Insurance Scheme," Laws, MDPI, vol. 11(5), pages 1-13, October.
    2. Chen, Wang & Zhang, Zhiwen & Hamori, Shigeyuki & Kinkyo, Takuji, 2021. "Not all bank systemic risks are alike: Deposit insurance and bank risk revisited," International Review of Financial Analysis, Elsevier, vol. 77(C).

    More about this item

    Keywords

    Deposit Insurance;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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