Transcript IADI Annual Conference 2011 - :::..Deposit Insurance and

Role of Deposit Insurance in Bank Resolution
Framework – Lessons from the Financial Crisis
November 13-16, 2011
JODHPUR, INDIA
Hiroyuki Obata
Deputy Governor
Deposit Insurance Corporation of Japan
Today’s Topics
I. Introduction
II. Big Picture
III. Lessons from the Financial Crisis
IV. Conclusion
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I. Introduction
1. Sovereign risks in Europe (Greece, Italy)
2. No Too Big To Fail financial institutions
=>G-SIFIs: strengthened supervision, additional
capital requirements
3. Failure of MF Global Holdings
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II. Big Picture
Three Issues
1. Subprime to sovereign debt
2. Starting locally but global impact
3. Confidence in government at stake
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II. Big Picture
1. Subprime to Sovereign Debt
<Financial Crisis>
 1st stage: subprime mortgage crisis in the U.S.
 2nd stage: sovereign debt crisis in Europe
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II. Big Picture
2. Starting locally but global impact
Subprime mortgage crisis in the U.S. had
impacts not only financial institutions in the
U.S. but also in Europe.
European sovereign debt crisis saw
bankruptcy of MF Global Holdings in the U.S.
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II. Big Picture
2. Starting Locally but global impact
As for real economy, more impact on export
reliant countries than the U.S. or Europe.
Export (% change from preceding period)
Source: United Nations
II. Big Picture
2. Starting Locally but global impact
Distress of European banks could lead to pulling out
of their money from developing countries
Bank Claims On Developing Countries
Source: BIS , International Bank Claims (24 countries)
II. Big Picture
3. Confidence in Government at Stake
 Rescue plan for Greece was agreed; however,
there remains uncertainty regarding its
implementation
 Italy was placed under IMF surveillance
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III. Lessons from the Financial Crisis
1. Macro economic role for deposit
insurance system
2. Deposit insurance system without
government money
3. International cooperation and
coordination
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III. Lessons from the Financial Crisis
1. Macro economic role
for deposit insurance system
Protection of Depositors
(microeconomic role)
+
Stability of the financial system
(macroeconomic role)
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III. Lessons from the Financial Crisis
1. Macro economic role
for deposit insurance system
 Strengthening of deposit insurance system
 Division of labor and cooperation among
safety-net players
 Japan’s experience
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III. Lessons from the Financial Crisis
2. Deposit insurance system
without government money
Shaky confidence in government could mean no public money
for bank resolutions in time of crisis.
 Reinforcement of deposit insurance fund
=> Ex-ante collection of premiums
=> Targeting fund level
=> Premium rates
 Living will
=> No Too Big To Fail financial institutions
 Japan’s experience
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III. Lessons from the Financial Crisis
3. International Cooperation and Coordination
 Cross-border cooperation is necessary to deal
with globalized financial system
 Coordination and harmonization of deposit
insurance system is essential to prevent cherrypicking
 Japan’s experience
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IV. Conclusion
 Greater role is expected for the deposit insurer
as one of the safety-net players
 IADI has much to do to promote cooperation and
harmonization of the deposit insurance system
globally.
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