The Deposit Insurance System And Its Financial Development Effect Study

The stability of financial systems has been widely debated in theoretical and practical fields. Since the 1970's, financial systems have experienced interest rate liberalization, allowing substantial progress in global financial markets. However, as financial development and economic growth become increasingly entwined, banks suffer more from fierce competition and unpredictable external forces resulting in many bank crises.Financial systems must work smoothly and efficiently in the global economy. Increasingly, more countries have adopted deposit insurance as a safety net to protect their banking systems. China reportedly will introduce the same scheme to substitute the original implicit insurance arrangement.As long as the idea of deposit insurance remains on the table, debate will continue. Theoretically, deposit insurance changes incentive restrictions faced by the depositors. On one hand, it eliminates the panic bank runs, so as to isolate the infectivity of bank crisis. On the other hand, it weakens the depositors' motivation to inspect banks, which in turn loosens the market disciplines and induces the bankers overtake risks. Practically, Deposit insurance, without strict supervision will cause severe moral hazard. Badly-designed schemes are always accompanied with adverse selection.In this thesis, I analyze the systems and mechanisms of deposit insurance and the various effects resulting from the scheme. I collected and investigated the most up to date data of deposit insurance from around the world. I drew some new conclusions as to why the scheme is different in many countries, whether the explicit scheme will definiately enlarge moral harzard, and how to fairly price the deposit insurance. Finally, I researched China's necessity to introduce and design this scheme, including efficient rules and regulations.This text has seven chapters:Chapter one is an introduction, which outlines the structure and methodology of the thesis. In this part, I also review respective studies in this field.Chapter two elaborates on the bank crisis and crisis prevention theories. Beginning with the specialties of banks, I compare different ways of preventing...