1 Deposit Insurance: Handle with Care

Abstract: Explicit deposit insurance has been spreading rapidly in the past decades, most recently to countries with low levels of financial and institutional development. This paper documents the extent of cross-country differences in deposit-insurance design and reviews empirical evidence on how particular design features affect private market discipline, banking stability, financial development, and the effectiveness of crisis resolution. This evidence challenges the wisdom of encouraging countries to adopt explicit deposit insurance without first stopping to assess and remedy weaknesses in their informational and supervisory environments