Deposit Insurance:

Overview of Six Foreign Systems

NSIAD-91-104: Published: Feb 22, 1991. Publicly Released: Feb 22, 1991.

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Pursuant to a congressional request, GAO provided information on deposit insurance and protection systems in Germany, France, the United Kingdom (UK), Italy, Japan, and Canada, focusing on the: (1) countries' overall financial regulation systems; (2) countries' resolution of bank failures; and (3) European Community's (EC) efforts to encourage establishing EC-wide deposit protection.

GAO found that: (1) all of the countries except for Japan experienced bank failures within the last 15 years and created their current bank deposit protection systems in response to crises in the safety and soundness of their banking systems; (2) Italy and UK extended some risk to depositors, while Japan depended primarily upon its banks' capital base and informal regulatory measures to ensure against bank failure; (3) France, Germany, and Italy placed primary responsibility on the banks to guarantee deposits rather than relying on government-administered systems; (4) such foreign bank privatization gave banks more flexibility in resolving their difficulties, encouraged them to work together in settling those difficulties before regulatory intervention, and by assigning more responsibility for the consequences of their actions, created disincentives to excessive risk taking; (5) a quasi-government agency administered Canada's compulsory deposit insurance program under jurisdiction of Canada's Department of Finance; (6) EC was formalizing plans to ensure that all member states had some type of deposit protection system; (7) foreign regulators reported that their deposit protection systems played a minor role in ensuring banking safety and soundness, and that limiting risks through strong prudential supervision was a more important factor; and (8) foreign regulators reported that equity shareholdings by banks in companies they serviced, long-term bank/customer relationships, diversification of risk through universal banking, and unrestricted geographic expansions were key elements for ensuring a healthy banking system.

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