The analysis of deposit insurance mechanism for various countries and a proposal of a new model for Turkey

Abstract

Banking system depends on stable source of funds. Assurance of stability of fundsprovides operational and financial leverage to the system. Commercial banks' majorsource of funding is from the depositors. The diversified nature of depositors provides astable funding base.However at a certain period of time, this stability may be threatened by variouseconomic or social turbulences. Despite some efforts of past governments, widespreadbank-runs and collapse of banking sector occurred in the past, which lead theestablishment of the deposit insurance system. These systems appear to be created to-help restoring the public confidence in the banking system, to provide the governmentwith a formal mechanism for dealing with failing banks, and to assure that smalldepositors would be protected in the event of bank failures. This study has three basicsteps:The first is to identify the major properties of deposit insurance systems. Thesefeatures are types of financial institutions that are eligible for deposit insurance. The issueof whether the deposit insurance system should be public or private, whether the systemshould be compulsory or voluntary, the amount of insurance coverage that should beoffered to depositors and the financing the deposit insurance system.The second step is toanalyze and evaluate the implications of creating depositinsurance system in some developing countries such as Colombia and India as well as insome developed countries such as U.S.A, U.K, Germany, France and Spain. As a finalstep in this study, we will analyze the current deposit insurance system in Turkey andreview its pros and cons.Under the light of the-above mentioned steps and also by analyzing the financialstructure of the Turkish banking system including its deposit, capital and loan features,we will propose a new and effective model for the Turkish deposit insurance system.