www.iadi.org

How Good Interrelationships Promote Effective Deposit Insurance Systems

 Presentation to the IADI/EBRD Deposit Insurance SeminarDecember 8, 2003

J.R. LaBrosseSecretary General

www.iadi.org

• Effective interrelationships among financial safety

net players are essential to an effective deposit insurance system.

www.iadi.org

• Guidance on Interrelationships from the FSF Report

• The Canadian Approach

• Extending the principles to the international domain

www.iadi.org

Key attributes of an effective system:

• Mandate should be aligned with objectives and powers

• Setting responsibilities and accountabilities clarifies roles of the safety net players

www.iadi.org

• The more complex the safety net institutional framework; the more relevant the interrelationships issues become

• Different safety-net functions contribute to stability of financial systems but also introduce potential conflicts of interest

www.iadi.org

• There is no one model to recommend

• The supervisory authority is usually the primary source of information

• A deposit insurer’s information needs vary according to its mandate

www.iadi.org

• When is the interrelationship issue internalized

• When is it not?

www.iadi.org

MANDATE POWERS INTERACTION DURING LIFE

CYCLE OF INSTITUTIONS

(Beginning, Midlife, End)

EFFECTIVENESS AND COST

MINIMIZATION

INTER –RELATIONSHIP

ISSUES

PURE PAYBOX

Reactive(e.g. clean-up,

liquidation)

FailureLow

MainlyInformation

SharingCOST-REDUCING OBJECTIVE

Mainly reactive, some proactive

features(e.g. clean-up but some

risk assessment & limited role in failure

resolution)

Approaching failure,

(but some interaction upon failure)

Low - MedRequires well-defined roles, responsibilities, information sharing

& co-ordination

FULL RISK MINIMIZER

Proactive(e.g. risk

identification risk assessment and management)

Beginning, Midlife,Troubled

High Requires well-defined roles, responsibilities,

co-ordination information sharing

& co-ordination

www.iadi.org

“…Good Fences Make Good Neighbours…”

• The Canadian Case

Interrelationships Among Financial Safety-Net Players

“…Good Fences Make Good Neighbours…”

•Coordination is essential

• A strong accountability regime

CDIC’s Role Within Canada’s Prudential Regulatory System

D e pa rtm e nto f F in an ce

O S FI F C A C C D IC

C P A

B a nk o fC a na da

M in is te r o f F in a n ce

P a rliam e nt

F e d e ra l

P ro v in c ia lD e p os it Insu re rs

P ro v in c ia lR e g u la to rs

M in is ters o f F in a n ce

L e g is la tu res

P ro v in c ia l

C a n ad ia n P ru d en tia l R e g u la rto ry a nd S up e rv iso ry S ys tem

Interrelationships Among Financial Safety-Net Players

Coordination is accomplished through the following seven mechanisms:

1. CDIC Board of Directors2. FISC3. SAC

Interrelationships Among Financial Safety-Net Players

4. Guide to Intervention5. CDIC/OSFI Strategic Alliance Agreement6. Liaison Committee7. Regular meetings with regulators

Interrelationships Among Financial Safety-Net Players

“…Good Fences Make Good Neighbours…”

www.iadi.org

“the more we get together the happier we will be”

www.iadi.org

How Good Interrelationships Promote Effective Deposit Insurance

 

December 8, 2003

J. R. LaBrosseSecretary General