Modis: A Market-Oriented Deposit Insurance Scheme

By Edda Zoli, Danyang Xie, Reza Vaez-Zadeh

December 1, 2002

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Edda Zoli, Danyang Xie, and Reza Vaez-Zadeh. Modis: A Market-Oriented Deposit Insurance Scheme, (USA: International Monetary Fund, 2002) accessed November 24, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper argues that an optimal deposit insurance scheme would allow the level of insurance coverage to be determined by the market. Based on this principle, the paper proposes an insurance scheme that minimizes distortions and embodies fairness and credibility, two essential characteristics of a viable and effective deposit insurance scheme. Using a simple model for the determination of the optimal level of insurance coverage, it is shown that the optimal coverage is higher for developing compared to developed countries; a condition that is broadly satisfied by prevailing deposit insurance practices around the world.

Subject: Bank deposits, Banking, Deposit insurance, Distressed institutions, Financial crises, Financial institutions, Financial sector policy and analysis, Financial services, Insurance, Moral hazard

Keywords: Africa, Bank deposits, Deposit insurance, Deposit liability, Distressed institutions, Europe, Global, Guarantee scheme, Insurance, Insurance agency, Insurance scheme, Insurance system, Insured deposit, Interest rate, Market-oriented approach, Middle East, Moral hazard, Protection arrangement, Western Hemisphere, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/207
Stock No:

WPIEA2072002
ISBN:

9781451874662
ISSN:

1018-5941

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