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How Can Croatia's Deposit Insurance System Be Improved

Author

Listed:
  • Michael Faulend

    (The Croatian National Bank, Croatia)

  • Evan Kraft

Abstract

This paper examines the potential weaknesses of Croatia’s existing deposit insurance system. The major weaknesses of the system lie in design elements that prevent it from dealing adequately with moral hazard problems. Drawing on the positive experiences of numerous other countries and the EU Directive on deposit-guarantee schemes, this paper suggests ways to improve the existing system, devoting special attention to mitigating the moral hazard problem. The paper also discusses possible ways to neutralise two remaining problems: adverse selection and the principal- agent conflicts. It points out some further features of the deposit insurance system that will need to be modified to align Croatia’s system with EU legislation. Finally, the paper also discusses timing issues in implementing the changes suggested.

Suggested Citation

  • Michael Faulend & Evan Kraft, 2005. "How Can Croatia's Deposit Insurance System Be Improved," Surveys 11, The Croatian National Bank, Croatia.
    • Handle: RePEc:hnb:survey:11
    as

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    File URL: http://www.hnb.hr/repec/hnb/survey/pdf/s-011.pdf
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    References listed on IDEAS

    as
    1. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    deposit insurance; banking system; transition economy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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