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Deposit Insurance Schemes

In: Encyclopedia of Finance

Author

Listed:
  • James R. Barth

    (Auburn University and Milken Institute
    Auburn University)

  • Nguyen Nguyen

    (Minnesota State University)

  • Jiayi Xu

    (Mount St. Joseph University)

Abstract

More than two-thirds of member countries of the International Monetary Fund have experienced one or more banking crises in recent years. The inherent fragility of banks has motivated more than 70% of the countries in the world to establish deposit insurance schemes. By increasing depositor confidence, deposit insurance has the potential to provide for a more stable banking system. Although deposit insurance increases depositor confidence, however, it removes depositor discipline. Banks may therefore engage in activities that are riskier than would otherwise be the case. Deposit insurance itself, in other words, could increase the likelihood of a crisis. Our purpose is to examine the extent of deposit schemes in countries and the types of schemes adopted as well as assess the benefits and costs of the schemes in promoting stability in the banking sector.

Suggested Citation

  • James R. Barth & Nguyen Nguyen & Jiayi Xu, 2022. "Deposit Insurance Schemes," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 2, pages 511-527, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_2
    DOI: 10.1007/978-3-030-91231-4_2
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