Deposit Insurance
November 1, 2009 by: admin
It is easy to understand how this system works. If you deposit your money in a participating banking or financial institution, you are given a guarantee that you will be repaid in the event of failure of the bank with which the deposit was made. You will receive the principal value of your deposit. Most of the time, you will also get the accrued interest. However, in most countries, there is a ceiling limit on the amount of money that the system covers. Fundamentally, the deposit insurance system is established to protect the less financially knowledgeable and small depositors from losing their savings. Thus, huge deposits are usually excluded. This system assures the people to trust the stability of the financial system of the country.
In most cases, deposit insurance institutions are operated by the government and are a part of the country’s central bank. Some are run by private companies, which may or may not have government backing. A considerable number of national deposit insurers are members of IADI (International Association of Deposit Insurers), an international organization formed to contribute to the steadiness of financial systems and to encourage cooperation among deposit insurers.
As of 2006, there are 118 countries with a deposit insurance scheme in operation, planned or under study. Some of them have more than one system in operation. These include Canada, Germany, Italy, Austria and the United States. There are also deposit insurance systems that cover more than one country. For example, the US Federal Deposit Insurance Corporation covers Puerto Rico, Micronesia and the Marshall Islands.
By: Aila Sanchez
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