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Indonesia's New Deposit Guarantee Law

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Author Info
Ross H. McLeod ()

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Abstract

The blanket guarantee introduced in 1998 in response to the emerging banking and economic crisis resulted in $50 billion of losses to the general public. The government has now introduced a law that enables the phasing out of this blanket guarantee, but which also allows for its reinstatement in the event of any threatened collapse of the banking system. Rather than eliminating the possibility of any repetition of the previous banking disaster, the new law effectively mandates an almost identical approach to handling system-wide banking collapses in the future, suggesting that the authorities and their advisers learned very little from the recent bitter experience. It is argued here that the crucial starting point for formulating policy in this field is to correctly specify the exact purpose that government intervention is intended to serve: namely, the avoidance of major macroeconomic disruption as a result of bank failures.

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Publisher Info
Paper provided by Australian National University, Economics RSPAS in its series Departmental Working Papers with number 2005-08.

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Length: 24 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:pas:papers:2005-08

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Related research
Keywords: banking; bailout; deposit guarantee; deposit insurance; moral hazard;

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mark J. Manning, 2003. "Finance Causes Growth: Can We Be So Sure?," The B.E. Journal of Macroeconomics, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  2. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank. [Downloadable!]
  3. Charles Enoch & Olivier Fre´caut & Arto Kovanen*, 2003. "Indonesia'S Banking Crisis: What Happened And What Did We Learn?," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 39(1), pages 75-18, April. [Downloadable!] (restricted)
  4. Ross McLeod, 1993. "Survey of Recent developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 29(2), pages 3-42, August. [Downloadable!] (restricted)
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This page was last updated on 2009-11-30.

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