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Given the importance of funding to deposit insurance systems, the Financial Stability Board’s recommendations, and lessons learned in the wake of the international financial crisis, this IADI Guidance Paper sets out additional guidance to address these matters, such as:
- Deposit insurers should implement ex ante funding mechanisms to have available the financial capacity to carry out their mandates effectively;
- deposit insurers should determine the appropriate target level of the deposit insurance fund (DIF) on the basis of clear and well-developed criteria that are consistent with their mandate;
- deposit insurers should set a reasonable time frame to achieve the expected target level of DIF;
- the level of ex ante funds should not be static;
- liquidity funding is a critical component of a deposit insurer’s funding framework and such arrangements should be explicitly set out in law or regulation;
- the objectives and strategy for fund management should be clearly set out and aligned with the deposit insurer’s mandate;
- for a deposit insurance system that has separate DIFs, each DIF should have clearly defined objectives;
- separate DIFs with their own target reserves should be considered for clear and distinct industry sectors within the financial system which are subject to distinct or separate guarantees (e.g. banks, insurance companies, investment companies), in order to avoid cross-subsidization and to promote equity and fairness;
- deposit insurance funds can be utilized for many purposes (clearly established in legislation), depending on legislated mandates, including the reimbursement of depositors’ claims in the event of bank failures and the recapitalization of banks.