Because banking institution failures have the potential to trigger a broad spectrum of harmful events, including economic recessions, policy makers maintain deposit insurance schemes to protect depositors and to give them comfort that their funds are not at risk.
There are a number of countries with more than one deposit insurance system in operation, including Austria, Canada (Ontario and Quebec), Germany, Italy, and the United States.
[3] The Corporation for Deposit Insurance (CODI), a subsidiary of the South African Reserve Bank, was launched in April 2024.
The Fiscal Responsibility Act prohibits the use of public funds to finance the losses, so it is formed exclusively by compulsory contributions from the participating institutions.
Funds in a foreign currency and guaranteed investment certificates with a term of longer than five years held in a CDIC-registered financial institution are insured as of 30 April 2020.
The roots of this reform can be traced back to the 19th century, such as Upper Canada's financial problems of 1866, the North American panic of 1872, and the 1923 failure of Toronto's Home Bank, symbolized today by Casa Loma.
Historically, in Canada, regional risk has always been spread nationally within each large bank, unlike the uneven geography of US unit banking, layered with savings & loans of regional or national size, which in turn disperse their risk through investors.
The United States was the second country (after Czechoslovakia)[9] to institute national deposit insurance when it established the FDIC in the wake of the 1933 banking crisis that accompanied the Great Depression.
On 7 October 2008, the Ecofin meeting of EU's ministers of finance agreed to increase the minimum amount to 50,000.
Many other EU countries, starting with the United Kingdom, reacted by increasing their limits to discourage people from transferring their savings to Irish banks.
[42] Deposit insurance in Iceland is handled by Depositors' and Investors' Guarantee Fund (Tryggingarsjóður) and covers a minimum of 20,887 euros.
[43] However, the fund was drastically insufficient to cover the bank failures of the 2008–2012 Icelandic financial crisis, particularly Icesave.
Maximum compensation is limited to 1,400,000 roubles[50] (equivalent to approximately 21,800 US dollars or 19,500 Euro at September 2016 exchange rate).
There were 15 "insured events" (bankruptcy cases involving DIA intervention) in 2007 with resulting payout reaching 350 million roubles.
[51] The agency is set up as a state-owned corporation, managed jointly by Central Bank and the government of Russia.
The murder of Andrey Kozlov, the Central Bank executive in charge of DIA admission, was directly linked to his non-compromising attitude to money launderers.
Membership is compulsory for all banks and securities dealers that are regulated by the Swiss Financial Market Supervisory Authority (FINMA).
The Guernsey scheme was enacted in November 2008[60] and offers compensation of up to £50,000 per depositor, subject to an overall cap of £100 million in any five-year period.
The Isle of Man government called an emergency session of the Tynwald parliament, which voted unanimously to bring the Isle of Man depositors' compensation scheme into line with the newly enlarged scheme in the United Kingdom, guaranteeing with immediate effect 100 percent of the first £50,000 per depositor per bank, and studying amendments for the subsequent inclusion within the scheme of corporate and charitable accounts.
The Isle of Man government also pressed the Icelandic government to honour Kaupthing hf's irrevocable and binding guarantee of all depositors' funds held by Kaupthing Singer & Friedlander (Isle of Man) Ltd.[62] The last bank failure in which Australian depositors lost money (and then only a minimal amount) was that of a trading bank, the Primary Producers Bank of Australia, in 1931 (Fitz-Gibbon and Gizycki 2001).
This measure was in addition to the mandates of APRA and ASIC to monitor Australian authorised deposit-taking institutions (ADIs), including banks, to ensure that their risks do not compromise the safety of depositors' funds.
[65][66] The guarantee also applies to foreign-owned banks, but only to deposit accounts in Australia and only with funds in Australian dollars.
[72] With the vast majority of Chinese savers holding far less than the maximum, and the central bank has calculated that 99.6% of depositors will be protected in full.
The plan is expected to take effect in January 2015, and is intended by Chinese officials to increase certainty and help customers better assess risks and protect the nation's financial stability in the event of a crisis.
The Deposit Insurance Corporation commenced functioning on 1 January 1962, under the aegis of the Reserve Bank of India (RBI).
In 1978, the DIC and the CGCI were merged to form the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Deposit Insurance Corporation of Japan, founded in 1971 and based in Tokyo, oversees this function for institutes other than agricultural and fishery co-operative.
[85] Detractors of deposit insurance claim the schemes introduce a moral hazard issue, encouraging both depositors and banks to take on excessive risks.
The Bibby plan, which avoids the problem of moral hazard but still prevents bank runs, would have the state provide deposit insurance, with the banks paying regular premiums to the state reflecting the extent of the deposit insurance.
The plan would allow some element of differentiation between banks in terms of investment risk and in the level of insurance offered.