International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March,...
-
Upload
bryce-dixon -
Category
Documents
-
view
217 -
download
0
Transcript of International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March,...
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
The Legal Architecture of Deposit Insurance Systems
The Legal Architecture of Deposit Insurance Systems
Arthur MitchellGeneral Counsel
Asian Development Bank28 March 2007, Hanoi
Arthur MitchellGeneral Counsel
Asian Development Bank28 March 2007, Hanoi
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Support by Asian Development Bank
• Support for Financial Sector development and reform throughout the Asia Region through:– ongoing policy advice; – policy-based loans;– capacity building services.
• ADB’s aim is to:– improve the quality of, and to build confidence
in, financial markets;– contribute to the evolution of a good credit
culture
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Types of Depository Insurance Systems
• Explicit Systems = contractual obligations– Pillar of the financial safety net– 2005, 78 countries have some form of explicit
deposit guarantee program – up from 12 in 1974.
– 2000, Viet Nam introduced limited guaranteed system
• Implicit Systems = coverage is conjectural, based on political incentives
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Range of Guarantee Coverage
Types of DIS Risks
Explicit Rule based
Specifies details of claims and timing of payment
Moral Hazard issue – reduces market discipline
Implicit Political incentives
Only announced after bank failure
Uncertain if claim will be paid
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
• No "one size fits all" set of guidelines • ARC + IADI are developing a set of best
practices:– Must be tailored to individual country needs – Country circumstances impact on what the DIS
can achieve and how to structure the DIS.
• A firm foundation is needed including:– effective prudential, regulatory, and supervisory
systems – efficient licensing and accounting regimes
Challenges for Designers
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Firm Foundation - Legal Environment
• Clear legal framework for banking regulation• Well-defined property and contractual rights which
are enforceable by the depositors • Legislation covering:
– securities markets, – a secured transactions regime, – consumer protection.
• Effective enforcement procedures for collection of claims and enforcement of security
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Firm Foundation –Effective Judicial System
• Recognizes rights of depositors;• Clear rules on jurisdiction and applicable law
for a matter to be heard quickly and expeditiously;
• Effective enforcement laws and court procedures for the collection of claims against the failed banking institution and related parties;
• Laws providing for the enforcement of security, to offset some of the losses incurred.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Legal Framework For the Agency
• General Framework Requirements: – A clear legal mandate is needed for each supervisory
agency with consistent objectives– Legislation to identify:
• role of the depository insurance agency in bank supervision and in the liquidation of failed banks
• the extent of the coverage provided, the pricing for the insurance cover, and related terms and conditions
– Mandatory membership of DIS– DIS to be fully funded (base premiums on individual-bank
risk exposures )
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
General Framework Requirements
• Clear power to initiate insolvency proceedings of the failed banking institution
• Transparency when depository insurance agency implements claim procedures
• Agency and staff must be accountable -adequate judicial review provisions
• Clear legal protection for agency and staff acting within their power
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Challenges for each Jurisdiction
• Are amendments to legislation needed?
• Are there effective operations of:– the judiciary, – the courts, – the enforcement services?
• Change management support put in place
• Public awareness campaigns to be undertaken
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
DIV and its Challenges
• June 2005, DIV adopted a strategic development plan
• May 2006, a Financial Sector Roadmap (2007-08) was adopted to provide:– New Law on Deposit Insurance – key principles comprising comprehensive, integrated
legislation; the harmonizing and alignment of the financial safety net; and strong linkages to consumer protection
• DIV role is to be one of ‘risk minimizer’ • Interesting challenges ahead
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Conclusion – Key elements and conditions for introduction of DIS
• A poorly designed DIS tends to increase the likelihood that a country will experience a banking crisis. DIS can reduce inherent adverse incentives and moral hazard problems, while providing protection for small depositors.
• DIS cannot prevent, let alone withstand, systemic crisis. • Continued legal and regulatory reforms in the banking
sector and restructuring efforts to stabilize banking systems are prerequisites for introducing a well designed DIS.
• widen the horizons of our political leaders and policy makers as they consider reforms
• Link reforms to ensure a strong system of justice
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Thank youThank you
(Arthur Mitchell, General Counsel)
Web site: www.adb.org
(Arthur Mitchell, General Counsel)
Web site: www.adb.org