1. Deposit insurance schemes

More than two-thirds of member countries of the International Monetary Fund (IMF) have experienced one or more banking crises in recent years. The inherent fragility of banks has motivated about 50 percent of the countries in the world to establish deposit insurance schemes. By increasing depositor confidence, deposit insurance has the potential to provide for a more stable banking system. Although deposit insurance increases depositor confidence, it removes depositor discipline. Banks are thus freer to engage in activities that are riskier than would otherwise be the case. Deposit insurance itself, in other words, could be the cause of a crisis. The types of schemes countries have adopted will be assessed as well as the benefits and costs of these schemes in promoting stability in the banking sector.