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This paper responds to an FSB request of IADI to provide additional guidance on coverage issues, including striking the right balance between depositor protection, financial stability and market discipline; measures to address market discipline when coverage limits are extremely high (e.g. greater emphasis on regulation and early intervention); and ways of monitoring the effectiveness of coverage limits.
It proposes additional guidance, such as: Deposit insurers should have access to timely, detailed and accurate depositor information; the target coverage limit should be based on detailed analysis of depositors at risk of loss, so that most individual retail depositors are fully protected, while leaving a significant proportion of the value of deposits unprotected; the types of depositors covered should be those typically used by depositors-retail and corporate-with consideration given to excluding certain types of deposits (e.g., interbank deposits; deposits of government bodies) and depositors (e.g., directors, large shareholders and auditors of banks); the ownership, nature and purpose of deposit products qualifying for deposit insurance must be easily determined; if foreign currency deposits are widely used in a country, they should be insured; all banks including DSIBs and state-owned banks must participate in the deposit insurance system; if a foreign bank participates only in a host country’s deposit insurance system, coverage should be determined by the host country’s system; coverage limits should be reviewed on a regular basis; and depositors should be informed in advance of coverage limits and how they will be applied.