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Deposit Insurance: Handle With Care

  • Asli Demirgüç-Kun
  • Edward J. Kane

Explicit deposit insurance has been spreading rapidly in the past decades, most recently to countries with low levels of financial and institutional development. This paper documents the extent of crosscountry differences in deposit-insurance design and reviews empirical evidence on how particular design features affect private market discipline, banking stability, financial development, and the effectiveness of crisis resolution. This evidence challenges the wisdom of encouraging countries to adopt explicit deposit insurance without first stopping to assess and remedy weaknesses in their informational and supervisory environments. The paper also includes recommendations for reforming the Chilean deposit insurance system based on the results of the research reviewed here.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 227.

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Date of creation: Oct 2003
Date of revision:
Handle: RePEc:chb:bcchwp:227
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  1. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
  2. Hovakimian, Armen & Kane, Edward J. & Laeven, Luc, 2002. "How Country and Safety-Net Characteristics Affect Bank Risk-Shifting," CEI Working Paper Series 2002-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  3. Edward J. Kane & Asli Demirguc-Kunt, 2001. "Deposit Insurance Around the Globe: Where Does it Work?," NBER Working Papers 8493, National Bureau of Economic Research, Inc.
  4. Kane, Edward J., 2000. "Designing financial safety nets to fit country circumstances," Policy Research Working Paper Series 2453, The World Bank.
  5. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
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