Deposit insurance and credit unions: an international perspective

The purpose of this paper is to explore why credit unions might need deposit insurance, how they might respond to its introduction and how this protection mechanism should be designed. The objective is to determine how successful the deposit insurance scheme has been in the context of Northern Ireland and whether it offers an alternative to the public provision of deposit insurance which appears to have been the model adopted by credit union movements elsewhere.

As part of this analysis the paper considers the Northern Ireland experience where a subset of credit unions has been members of a private insurance arrangement since 1989.

The deposit insurance mechanism did not cause a propensity for member credit unions to engage in risk shifting behaviour. The analysis suggests that at present a universal blueprint in deposit insurance design may well be unnecessary in combating risk shifting behaviour.

This paper helps to fill a gap in the banking and finance literature where the study of deposit insurance in the context of credit unions has been given little attention.