The Geographic Dynamics of Deposit Insurance

Defina, Ryan (2021): The Geographic Dynamics of Deposit Insurance. Published in: International Association of Deposit Insurers Policy Brief

Abstract

Geography plays a fundamental role in today’s interconnected world. Financial flows operate within a multitude of regulatory and supervisory parameters often heavily influenced by regional factors. While deposit insurance is one factor affecting these flows, it too has been influenced by regional factors, particularly in the past 20 years with the rapid growth and development of deposit insurance systems, and has undergone substantial changes as a result. Understanding geographic dynamics in deposit insurance design enables policy makers to better understand the impact of regional factors on the features of deposit insurance systems and vice versa. Correlation between deposit insurer features in neighbouring jurisdictions offers the potential to facilitate collaboration under the grounds of common history and institutional development, but also introduces many challenges to multiple and bilateral coordination. We explore these issues further and highlight considerations for deposit insurance research, training and more targeted technical assistance initiatives.

This paper investigates the associations between the features of deposit insurance systems and geography using a relatively simple statistical approach, and quantified through analysis of data collected by IADI. The results focus on a cross-sectional analysis of 2019 Annual Survey results. An implicit assumption is made that relationships observed in 2019 data are broadly representative of the true underlying dynamics between variables of interest and geography, although further analysis incorporating a time dimension would provide clarity on this assumption.

Results suggest that geography is an important factor to consider when exploring a range of deposit insurance data items. However, this effect does not play a role for all aspects of deposit insurance systems, and is subject to a number of caveats. In some instances, the age of deposit insurers (a proxy for maturity in system design and implementation) can influence more than the region as a whole. Moreover, sample sizes used are relatively small so this needs to be taken into account when reviewing the results.

Future research directions in this area could seek to broaden the suite of data items considered; conduct a targeted follow-up to further unpack the economic, financial, legal and cultural dynamics driving both inter- and intra-regional variation; or explicitly consider temporal dynamics through appraising longitudinal panels of deposit insurance metrics.

• Item Type: MPRA Paper
• Language: English
• Keywords: deposit insurance; bank resolution
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation

References

International Association of Deposit Insurers. (2014). Revised Core Principles for Effective Deposit Insurance Systems. IADI Guidance Paper.

International Association of Deposit Insurers. (2019). IADI Annual Survey. IADI Data Files.

López, J. (2016). Technical Assistance: A Different Approach. IADI Conference Presentation.