| As an institution to protect depositors' interests and maintain the financial system steady, the deposit insurance system was first set up in America in the Great Depression. The establishment of the deposit insurance system has obviously kept accelerating in the world since 1980s. The defect, perfection and international comparison of the deposit insurance system are analyzed in the paper. With the constant increase of financial risk in our country, I think, it is rational for China to set up the deposit insurance system at present. This paper includes five sections:The first section: preface. Finance is the core of the modern economy, but the financial business is full of risk. In order to guarantee the safety of the finance, deposit insurance system, prudential supervision and lender-of-last-resort form the three fundamental elements of one nation's financial safety net. The deposit insurance system has worked more than 70 years now and played an important role in protecting one nation's depositors' interests and maintaining its financial system steady. The second section: theoretical basis of the deposit insurance system, including the fragility theory and the panic theory on financial institution. It is introduced first that the economic circle and currency supply would lead to the unstability of financial system. With the development of information economics, the fragility of financial institution is understood deeply: the information asymmetry in the financial field is the main reason for the financial intermediary's fragility. The depositor's behavior is the key factor that causes the financial institution dealing with the deposit unstable in the panic theory. The financial risk contagiosity can't be ignored too. The unrational bank run model, rational bank run model, "prisoners' dilemma" model, peculiar information model and financial risk contagiosity model are quoted in the paper to prove that bank run is unavoidable one in theory.The third section: comparative analysis of the deposit insurance system, including the establishment, development, perfection and comparison. The first deposit insurance system was set up in America in the Great Depression. Bank crisis took place successively in other countries' bank after 1950s, then the deposit insurance system was established in many countries. We can find that preventing bank run and the spread of finance panic were the common background for the countries to set up the deposit insurance system.The deposit insurance system has played an important role in protecting one nation's depositors' interests and maintaining the financial system steady. However, with the development of economy, especially the appearance of the bank crisis in 1980s, the deposit insurance system exposed its defect, namely adverse selection and moral hazard. Good financial institution inclines to stay out of the system because of adverse selection. With moral hazard the depositors will lose the supervision on financial institutions and the financial institutions will be engaged in the high-risky business. As for the debtors, the bad one is apter to get the loan and often invests beyond the fields applied for. The victims of the morals risk also include the depositors out of the system, the financial supervision departments, even the politicians. The solution to adverse selection and moral hazard is to set up an incentive compatibility in the deposit insurance system. We can adopt the different rate, strict market discipline, capital adequacy management, extensive information disclosure and strict financial supervision to make the deposit insurance system work well today.The comparative analysis of deposit insurance system is carried out at the end of this section. We find some experiences and trends through it. Generally, besides the basic one of protecting depositors' interests, rescue and supervision are the functions of the deposit insurance system too. The deposit insurance corporations are often set up by the government in most countries. The targets...
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