ANNALS OF THE UNIVERSITY OF ORADEA Fascicle of Management and Technological Engineering

Abstract—Goal of deposite insurance in banks is to provide stability of financial system and to protect the investors in savings deposits in banks in case of illiquidity. Based on the experience of the big crisis in 1930’s, it was concluded that, in addition to the risk from bankruptcy of individual banks, there can appear systemic risk that jeopardizes entire banking, as well as financial system. However, deposit insurance can potentially cause moral hazard with managers in the aspect of re-orientation to placements with higher risk that promise higher yield rates. For that reason, it is necessary to find a balance between greater readiness of bank managers to invest in increased risks and readiness of state deposit protection, taking on the responsibility to pay the deponents. State deposit insurance leads to the situation that deposits in banks are formed by somewhat lower interest rates than in case there is no insurance. The aim of this paper is to analyze deposit insurance from theoretic aspect, operationalization of deposit insurance and deposit insurance as anti-crisis mechanism in banking. Keywords—bank risk, moral hazard, deposit insurance, state insurance of bank deposits. I