Research On Legal Issues Of Moral Hazard Prevention In Deposit Insurance System

As a vital composition of financial safety net, deposit insurance system has great effect on protecting benefits of medium-small depositors, regulating the market withdrawal mechanism of financial institutions that are suffering bankruptcy, promoting the fairness in competition amongst each bank, and avoiding financial crisis. Any regulation, however, has both positive and negative effects, so does this deposit insurance system. Since in the legal relationship of deposit insurance system, obvious non-equivalence exists in the rights and obligations of every party, which leads to the mismatch between the profits they gain and the obligation they bear, and plus the presence of information asymmetry in financial market and of the principal-agent relations, the deposit insurance system has a great inclination to cause severe problems regarding to moral hazard. Not only will this moral hazard weaken the market supervision from depositors to the banking system, thus the banks could probably recklessly dedicate themselves into the investment that evolves high risks without thoughtful consideration, it also would indulge the financial supervision institution in problems related to "Regulatory Forbearance", and may have the possibility of the delay in closing failed financial institution by the deposit insurance institution, resulting in the raise of final disposal cost.Therefore, the deposit insurance system is like a "double-edged sword", and we need to perfect the corresponding laws and search for the improved scheme that will effectively evade these risks to overcome the moral hazard within it. Excellent examples are provided by the U.S. and Germany. Through the revision to the legislation in different eras, the U.S. has initiated a set of crucial innovation in its designing structure of deposit insurance system, and hence the moral hazard problems in deposit insurance system due to the involvement of state credit, have been effectively taken care of. While in Germany, the principal of self-discipline in banks plays the leading role in its non-official deposit insurance system, and the deposit insurance system is integrated with banker's association. Moreover, the organizations of deposit insurance have intimate correlation with departments of public supervision. All of these methods successfully lead to the deposit insurance system in Germany strengthen the market restraint, hence reduce the moral risk. In the latest final crisis, the deposit insurance systems of these two countries have fully functioned according to their professional risk disposal mechanism, developing the traditional function of stabilizing the operation of banks.Nowadays, with the prevalence of global financial crisis, our country should take this chance to step up the pace of the setup of explicit deposit insurance system, implementing the transformation from implicit deposit insurance system to explicit deposit insurance system, in order to guarantee the stabilization of financial system and to change the situation of financial safety net in China. To effectively take advantage of its positive impact and on the other hand prevent moral hazard confronted by the deposit insurance system, the regulation of compulsory membership, restriction of insurance coverage and premium, and the rigorous establishment of mechanism of legal responsibilities should be reasonably designed in China's future legislation for deposit insurance. Meanwhile, the reformation of related regulation should be concerned, such as perfecting internal management structure in business banks, enhancing outside coordination of financial security net, establishing and developing the credit rating system for financial institutions, and improving the mechanism of information disclosure, in order to further obtain the comprehensive prevention of moral hazard. To sum up, absorbing the experience of the U.S. and Germany modes in connection with the situation in our country and making use of effective legislation to control and avoid issues of moral hazard, are significantly meaningful both theoretically and practically in the process of the establishment of China's deposit insurance legal system.