Moral Hazard And Prevention Of Deposit Insurance System

As a financial safe guard system, the deposit insurance is called the financial safety net with bank supervising and the lender of last resort. The function of deposit insurance system lies in protection interests of small depositors, construction the market withdrawal mechanism of bankruptcy financial organ, strengthen confidence of people to finance and maintenance finance system stability.However the deposit insurance system has some shortcomings.It could bring adverse selection, moral hazard and agency problem. What is most serious of the deposit insuranc is the moral hazard. Under this system, the depositors have lost enthusiasm to supervise banks, and banks favored for high profit disregarding risks. Obviously, the deposit insurance system is "the double-edged sword". If designing the deposit insurance system ,we cannot understand the shortcomings and risks in it, then hasty to introduce deposit insurance system, which not only cannot stable financial system, also could intensify the financial system instability.The moral hazard is one kind of market phenomenon which occurs after the financial transaction. It originates from the depositors, the banks, the deposit insurance organizations and the supervising organizations. Although our country has not stablished the explicit deposit insurance system in the law, but continuously implements implicit deposit insurance. Under this kind of system, the moral hazard is more serious.Our country should speed up to establish explicit deposit insurance system, and should act differential rate according to the risk of banks.The deposit insurance is implemented successful in US and Germany where there are the huge difference in economy. Its success experience was helpful to us for establish a highly effective deposit insurance system. American careful designs deposit insurance system and Germany strengthens the external environment construction to avoid moral hazard.The paper discussed moral hazard in the deposit insurance system, thought the moral hazard on the one hand possibly originated from system designing, on the other hand also possibly originated from the external environment. Therefore our country should take effective method to avoid moral hazard in stablishment deposit insurance system. When we are going to establish deposit insurance system ,certainly need to think of our country reality and the national condition, otherwise not only cannot maintain stabilization of finance system, also should aggravate the moral hazard.