A Market Discipline Improved Deposit Insurance System: A Framework Design

Abstract

This article devises a new framework of deposit insurance that helps to improve market discipline. Focused on institutional relevance and continuity, it provides a new perspective for the reform of deposit insurance. The design integrates the environmental resilience theory of catastrophe risk management theory. Based on the risk-adjusted premiums mechanism, the framework unifies the supervision incentives of authorities, insurers and depositors. They jointly establish checks and balances on the risk-taking of banks. This article also puts forward some policy suggestions for the implementation of the new system.