Toward Effective Risk-Adjusted Bank Deposit Insurance: A Transnational Strategy


Following the recent wave of banking crises in Asia, Latin America, and Europe, government regulators worldwide are contemplating the adoption of, or enhancements to, risk-adjusted deposit insurance premium schemes. Despite the promises risk-adjusted premium schemes hold–namely, in curbing the moral hazard problem, ensuring a level playing field among banks of differing risk profiles, bridging the information asymmetries between banks and their depositors, and reducing regulatory costs–myriad difficulties associated with accurately assessing and pricing banking risks severely hinder the implementation of such schemes. As a solution, this Note posits an instrumental role for multilateral financial organizations in directing their unique institutional advantages toward the task of resolving the complexities inherent in risk pricing. The Note outlines a transnational strategy for risk-adjusted premium pricing that entails close collaboration between multilateral organizations and domestic regulators in developing best practices and supervisory guidance, and highlights suggested areas of reform for the rocky, though promising, road toward risk-adjusted premium schemes worldwide.