The public policy objectives

The content of this principle is “the first step in adopting a deposit insurance system or reforming an existing system is to specify appropriate public policy objectives that it is expected to achieve. These objectives should be formally specified and well integrated into the design of the deposit insurance system. The principal objectives for deposit insurance systems are to contribute to the stability of the financial system and protect depositors.” Obviously, the fundamental aim of the deposit insurance system is to safeguard the financial market and depositors.

After the 1997’s Asian financial crisis, the financial stability policy has been stressed by legal scholars. According to William A. Allen and Geoffrey Wood, financial stability means that institutions such as bank and insurance company do not go bankrupt all of a sudden and lead to economic loss to people who cannot make a proper judgement of the financial situation. There are two main roles for financial stability. The first is to monitor the whole financial framework in case of the sudden shock.