An analytical look at the evolution of the deposit guarantee system and its role in the resolution process and financial stability of the banking system

Farkhondeh, Mahsa; Ghalibaf  Asl, Hassan; Safdari Vaiaghani, Ali; Sargolzaei, Mostafa

doi:10.22034/jifb.2023.185595

An analytical look at the evolution of the deposit guarantee system and its role in the resolution process and financial stability of the banking system

Document Type : Original Article

Authors

Mahsa Farkhondeh ¹

Hassan Ghalibaf Asl ¹

Ali Safdari Vaiaghani ²

Mostafa Sargolzaei ³

¹ Department of Management, Faculty of Social Sciences and Economics, AL Zahra University, Vanak, Tehran, Iran

² Department of Financial Mathematics, Faculty of Mathematic and Statistic, Allamah Tabatabaei, Olympic, Tehran, Iran

³ Department of Finance and Banking, School of Management and Accounting, Allameh Tabatabai University

https://doi.org/10.22034/jifb.2023.185595

Abstract

The unfortunate consequences of recent financial crises on the world economy necessitated the implementation of policies to protect financial systems from external shocks. Considering the negative effects caused by the bankruptcy of banks, especially large banks, a mechanism called the bank resolution system was defined to restore the bank to health before it is considered bankrupt. In this regard, the deposit guarantee system, as one of the pillars of the financial safety network, can provide an opportunity to create laws and executive activities in order to quickly resolve them, while preventing bank raids in the conditions of banks' incapacity and crisis. Therefore, the purpose of this study is to investigate and analyze the role and position of the deposit guarantee system in the process of resolving the banking system. After the theoretical review and analysis, in order to understand the role of the deposit guarantee system in the resolution process of the banking system at the world level, statistical and experimental facts were discussed using world statistics. This research provides a better understanding of the importance of the banking resolution system and the role of the deposit guarantee system at the world level and, accordingly, its application in the country's banking system.

Keywords

Deposit guarantee

International Association of Deposit Insurers

bank resolution system

bank suspension and bankruptcy