这是一篇全英文论文，出自陕西君研投后管理部原创。特加注汉化引言——

引 言

      基于金融稳定论坛关于增强市场及机构弹性的报告，巴塞尔银行监管委员会及国际存款保险机构协会意识到，形成一套能够巩固存款保险制度的准则是十分有必要的。因此，它们在2009年6月一起制定了一套有效存款保险制度的核心原则。

     存款保险制度强调监管机构对储户的责任，并限制了自由裁量权的权限范围，能够提升公众的信心，有助于降低解决破产银行产生的费用，为各国提供一个有序可依的解决破产银行问题的流程并能为其提供解决问题的资金。该制度能够保证储户的存款能够被偿还。显而易见，一个有效的存款保险制度有利于解决银行破产的问题，同时也能保护储户的利益，维护金融市场的稳定。因此，巴塞尔银行监管委员会及国际存款保险机构协会为了改善现有的存款保险制度制定了18个核心原则。本文仅就其中4个原则进行讨论和分析，他们分别是公共政策的目标、治理原则、与其他安全系统参与者的关系、有效的解决过程，并分析他们在近期金融危机（2008年）中的表现。

Does the Core Principles of Effective Deposit Insurance System Work Effectively

Subject: Deposit Insurance

Keywords: Financial Stability   Protect Depositor   Independent Governance   Safety-net Participant   Effective Resolution Process

Introduction

Based on the Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience, Basel Committee on Banking Supervision and the International Association of Deposit Insurers realize that it is highly important and necessary to formulate a series of principle to enhance the system of deposit insurance. Therefore, the Core Principles for Effective Deposit Insurance System has been created by the BCBS and the IADI in June 2009.  

“A deposit insurance system clarifies the authority’s obligations to depositors (or if it is a private system, its members), limits the scope for discretionary decisions, can promote public confidence, helps to contain the costs of resolving failed banks and can provide countries with an orderly process for dealing with bank failures and a mechanism for banks to fund the cost of failures.” The system is able to promise that the savings can be repaid to the depositor. It is clear that an effective deposit insurance system is favourable to the failure banks and it can protect the interest of depositors and the financial market as well. Hence the BCBS and the IADI set up 18 core principles for the improvement of the current deposit insurance system. However, this essay will concentrate on four of them which are public policy objectives, governance, relationships with other safety-net participants and the effective resolution processes and analyze the performance of them during the recent financial crunch. 

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. Another key task of financial stability is to properly manage the crisis. In a word, “the achievement of financial stability…is now generally considered a public good.” As a consequence, keeping a stable financial order is crucial for the improvement of economy. 

Franklin R. Edwards considers that financial instruments such as banks have two fundamental characteristics which are take deposits and supply liquidity that mostly come from the savings for firms who need capital turnover at the same time. In case that a firm obtains a loan, while the firm suffers a serious operational error and finally it goes bankrupt, the firm will loss the payment ability and the loan cannot be repaid by the firm to the bank. Therefore, the possibility of losing their savings for depositors is notable. Especially in the extreme case that the bank declares insolvent, the depositors will undergo more serious losses. And then, most depositors are private investors and they are a disadvantage minority in the financial framework. For these reasons, the depositor protection should be taken seriously. If a jurisdiction has a deposit insurance system, then the profit of the depositor will be protected promptly. Hence, the loss of depositors will be extremely minimised. However, in case the bank run happens in a state that does not have a deposit insurance system, most depositors’ interest will not be guaranteed. And then, the panic will spread among the depositor which will harm the financial stability as well.   

The object proposed by the BCBS and IADI is to maximise the financial stability and the profit of depositors. And through the effective efforts, at present the IADI has “63 deposit insurers which from 62 different jurisdictions” and it is clear that the financial situation is becoming better and better after the crisis. Therefore, the target of the deposit insurance system is precise in essence.     

The governance

The original words of this rule are “the deposit insurer should be operationally independent, transparent, accountable and insulated from undue political and industry influence.” The governance is not only essential for individual organisation but also vital for the institution that performs on the basis of the international level. Accordingly, there is no doubt that the system of deposit insurance should be managed soundly. And what the system need is a highly professional authority which can make the judgement totally by itself. Based on the principles, the acceptable governance includes four parts which are independent, accountability, transparent, and integrity.    

There are two factors contained by independent which are the goal independence and operational independence. The exactly meaning of the independent states in this principle is the operational one which refers to the capacity that an institution can use the rights and methods which designed for it out of any external controls. The deposit insurer has the power to form a resolution for a certain case in the light of the estimation. Other official departments cannot intervene in the process of making a decision. And the deposit insurer has the right to reject any unlawful actions.       

Accountability indicates that the conducts and targets should be satisfied by the individual and parties. More specifically, the staff of an institution should understand what the goal exactly is and there has a valid method to judge if the goal has been achieved. For the deposit insurer, the value of the system is to protect the financial market and depositors. Therefore, it must formulate a series of operational measures to realize its aim. In general, an effective deposit insurance system contains the coverage that explains what kind of assets can be insured, the percentage of the compensation and the compensation process and so forth.

Transparency points out that the settlement of a case adopted by an institution should be explained to its stockholders. And disclosure states that the relevant information which is useful to evaluate the action of the institution should be revealed to the shareholders. Usually, the operational condition, the overall financial situation, the investment strategy, and the information of staffs will be interpreted in a report so that the board of directors can find out the detail information of the deposit insurance system. Once the board of directors know well about the system, they can make an appropriate evaluation of the system’s performance. Therefore, the excellent performance can be strengthened in the further; the drawback can be discovered and reformed at the same time.  

Integrity means that in order to maintain the well being of the institution whose object should not be interfered with other influences. There are generally two waves could have adverse impacts upon the deposit insurer. Although the deposit insurance system is an independent legal entity, however, there exists a possibility that the head of the entity or the structure of the system will be determined by other government authorities. The political force is dangerous in some degree. In order to obtain some political motives, the well being of deposit insurance system will be ignored by some politicians. The second risk comes from the officers of the deposit insurance system. They probably will confront many temptations such as bribery which can induce them to have incorrect behaviours.

A well performed system needs a well management. The four elements interplay with each other and work together to improve the level of governance which will be beneficial to the running of the deposit insurance system. Hence, as a deposit insure, it must follow this principle so that the system can be operated well.  

The relationships with other safety-net participants

Financial architecture has different kind of component elements and only each of them is operated properly, the whole frame can work orderly. Therefore, the BCBS and the IADI create a core principle states the code that indicates how the deposit insurance authority should cooperate with other financial components which as follows. “A framework should be in place for the close coordination and information sharing, on a routine basis as well as in relation to particular banks, among the deposit insurer and other financial system safety-net participants. Such information should be accurate and timely (subject to confidentiality when required). Information-sharing and coordination arrangements should be formalised.”  

There are at least three different understandings of the key components of a financial safety net. First of all, it includes two parts that are the deposit insurance and a lender of last resort. Secondly, except the two elements mentioned above, the prudential regulation and supervisory framework should be considered. In addition, a wider interpretation contains the failure resolution mechanisms for financial institutions. From the point of Mandanis Schooner & Michael W. Taylor, the government bailout is part of the financial safety net as well. When a bank confront a prospective failure, in case the method that mentioned above can address the problem is not work effectively, the government has the responsibility to provide capital to the bank. Due to the nature of government bailout, it is actually a kind of failure resolution mechanism. Therefore, the elements of a financial safety net have four different parts. The aim of the financial safety net is to protect the financial market and make sure that it maintains the sound development. A stable and well managed financial safety net will benefit to the whole financial system. At the same time, the financial well being demands that the variety elements cooperate with each other effectively. If one of the components fails, the framework will subject to a negative effect.

In the first place, “the lender of last resort must intervene promptly and assure the availability of refinancing to prevent financial difficulties from turning into an interactive cumulative decline that could lead to a great depression.” Generally, the function of a lender of last resort is performed by the central bank of a jurisdiction. The central bank has to assure that it can fulfil the demands of the debtor who has a contract with it no matter how hard the market condition is. Although the central bank will suffer a huge capital pressure during that period, the function of the lender of last resort is able to guarantee that the value of the savings and make sure that the financial risk is not transfer to the depositor of a bank. Therefore, the venture of failure of the assets will be reduced firstly by the lender of last resort. 

In addition, the prudential regulation and supervisory framework plays a vital rule in the financial safety net. In the past years, the frequently happened financial crisis created many passive influences to the global financial market; therefore, some international organizations such as the Bank for International Settlements and the World Bank have started to work on the acceptable framework for the purpose of enhancing the financial prudential regulation and supervisory. The concept of prudential regulation and supervisory comes from the document of Basel Committee whose name is Core Principles for Effective Banking Supervision. There are 25 principles are formed to make sure that the supervisory process is valid. In terms of the view of Dalvinder Singh, the scope of prudential regulation and supervisory is broad. It is comprised by a bank’s behaviours in one state as well as its international action happens in other jurisdictions. And then the authority needs to evaluate the possible effect that creates by the bank’s activities to the profit of financial market and the depositors. There is no doubt that the risk such as system failure always exists in the financial market. An appropriate regulation and supervision can provide an objective evaluation of risk profile of an institution. After the accurate judgement, the potential risk can be monitored by relevant institutions in case that it goes out of control in the further. If a risk has been existed in the financial system already, it can be forewarned and properly resolved by the authority. Hence, the prudential and supervisory framework is beneficial to the well being of the economy.  

What is more, the failure resolution mechanisms for financial institutions that is the last defence of the financial safety net. No one can guarantee that a well managed financial organization will never suffer a collapse in the further. Consequently, the last line of a safety net which can safeguard the financial market and investors should be operated soundly. Take the UK as an example, in terms of the Banking Act 2009, the Special Resolution Regime has been set up by the UK authority. The SRR is made up of three parts which are the stabilisation options, the bank insolvency and administration procedure. There are three techniques for the failing banks. First, the Bank of England can decide that whether a failing bank’s business should be transferred to a commercial buyer. Next, the Bank of England can establish a bridge bank which is wholly owned by the Bank to take over the failing bank. And then, a failing bank can be nationalised by the HM Treasury. If a bank is unable to pay its debts or winding up a bank is favourable to the interest of public or the winding up would be fair, then the bank will enter into the insolvency process. According to the Banking Act 2009, the application can be made by the Bank of England, the Financial Service Authority (FSA) or the Secretary of State to the court due to different reasons. It is clear that through the SRR, both the failing bank and failed bank can be properly resolved.

Different jurisdiction has different financial system. Therefore the pattern of coordination among the partners of the financial safety net is various in each state. In the United Kingdom, the Financial Services Compensation Scheme（FSCS）and the tripartite authorities includes the Bank of England, the FSA and the HM Treasury compose a financial safety net. The FSCS is the independent deposit insurer whose range “covers business conducted by firms authorised by the FSA” The Bank of England is the central bank of UK. The responsibility of FSA and the Treasury is the prudential supervision of the financial market. The tripartite authorities in charge of the failure resolution process at the same time. The association among them is positive and effective so that the useful information can be shared without delay which can maintain the well running of the safety net.    

The effective resolution processes

In order to address a financial problem, a useful system can easily be set up. Nonetheless, the heart of a matter is how to operate this system. Hence, the operation process of an effective deposit insurance system has been designed by the BCBS and the IADI. “Effective failure-resolution processes should: facilitate the ability of the deposit insurer to meet its obligations including reimbursement of depositors promptly and accurately and on an equitable basis; minimise resolution costs and disruption of markets; maximise recoveries on assets; and, reinforce discipline through legal actions in cases of negligence or other wrongdoings. In addition, the deposit insurer or other relevant financial system safety-net participant should have the authority to establish a flexible mechanism to help preserve critical banking functions by facilitating the acquisition by an appropriate body of the assets and the assumption of the liabilities of a failed bank (e.g. providing depositors with continuous access to their funds and maintaining clearing and settlement activities).” 

In order to successfully accomplish the goal of protecting the financial stability and depositors, the deposit insurer should enforce the relevant rules strictly. The most important step is to confirm that the loss of depositor can be repaid timely and precisely. “The speed and convenience of the reimbursement can affect public confidence in the deposit insurance system.” What is more serious is if the depositor cannot receive compensation of their loss rapidly, they will not only distrust the deposit insurer, but also doubt the performance of the whole financial system which is harmful to the financial stability. And then, the expense of process of compensation and the interruption of the normal financial market order should be diminished. At the same time, for the purpose of providing the maximum protection of the depositor, the coverage of the insurance should be expanded largely and the regulation of the staffs of the system should be strengthened as well. Moreover, the depositor ought to have the right to acquire the information about their funds and the actions of the financial institutions. Only these elements are fulfilled, the resolution process can be deemed as an effective procedure.       

The Financial Crisis

Clearly, before the recent financial crisis, the financial system did not work as it should be. It did not anticipate this financial tragedy in time. Because of the subprime mortgage crisis of America, a great deal of multinational financial enterprises such as Lehman Brother and the traditional banking like Washington Mutual Savings Bank had suffered a collapse. There were no distinct signals can warn the financial regulators and investors that the financial market was experiencing problems and probably would be damaged. In addition, the recent financial crisis had not been managed well. In terms of the highly globalisation of the financial market, this American financial plight spreads to all over the world and it becomes to the worst global financial crisis as well. Hence many depositors suffered heavy losses in the crisis. Due to the lack of a suitable and worldwide financial stability policy, it is extremely hard for different jurisdictions to cooperate with each other to protect the depositor’s interest.   

However, after the recent financial crunch happened, the core principles are formulated and brought into force in 2009 to help recovering the economic development. Apparently, the core principles give the administrators a correct direction and are beneficial to the recovery of the economy. More specifically, these principles clearly emphasize the aim of a well-run financial market. Although different kind of financial institutions play different kind of role in the financial market, the target of them is the same which is to improve the stability of the economic system and protect the interest of the investors. If the two basic aims can be achieved, the world economy would grow healthily and rapidly. However, the problem is how to gain these ideal results. The core principles provide the detailed measures simultaneously.

An individual financial institution intends to play its role in the financial market, it should be operated independently. In order to fulfil the aim of each financial institution, the administration should be managed by the institution itself. Other political and economic entity or the staff of the financial institution should not interfere with the operation. However, the exertion of a single financial institution is not enough for the well being of the financial market. It needs the joint efforts from the member of financial safety net at the same time. “A proper financial safety net is necessary to reduce the risk of severe financial crises. Without an appropriate financial safety net, even simple rumours of problems regarding solvency or liquidity of a financial institution have the potential to become self-fulfilling and turn into a full-blown financial crisis. With an appropriate financial safety net in place, confidence tends to be greater and the onset of financial crises less likely than otherwise.” Hence, the different financial departments should cooperate with each other on the basis of the independent management to prevent the financial crisis. Beyond these actions, the effective resolution process is crucial for the financial system as well. It is clear that a financial market cannot always work well. In case of the failure of a segment of the system, there should be a series of mechanisms that can resolve the problems promptly and effectively.

Because of the well cooperated of these principles in the financial market, the financial situation is becoming better and better after the enforcement of these principles. Despite the principles are designed for the deposit insurance system, it is can be learned for other financial department. Only the whole financial system goes well, the financial crisis can be anticipated and blocked in advance.

Conclusion 

Although the core principles are not established to contain all the different banking systems, they are generally interchangeable codes for various jurisdictions. “An effective deposit insurance system contributes to the stability of the financial system and protects less financially sophisticated depositors from loss.” At present, the connection between different financial systems goes into more and more internationally in substance so that the supervision is required to be worked validly cross borders. Therefore, the deposit insurance system needs an international standard for various states to reference and the core principles for effective deposit insurance system are a favourable series of codes for the regulator of different jurisdiction to consider.  

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