Hiroyuki ObataDeputy Governor

Deposit Insurance Corporation of Japan

Role of Deposit Insurance in Bank Resolution Framework – Lessons from the Financial Crisis

November 13-16, 2011 JODHPUR, INDIA

Today’s Topics

I. Introduction

II. Big Picture

III.　 Lessons from the Financial Crisis

IV. Conclusion

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I. Introduction

1. Sovereign risks in Europe (Greece, Italy)

2. No Too Big To Fail financial institutions =>G-SIFIs: strengthened supervision, additional

capital requirements 3. Failure of MF Global Holdings

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II.　 Big Picture

Three Issues1. Subprime to sovereign debt2. Starting locally but global impact3. Confidence in government at stake

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II. Big Picture1. Subprime to Sovereign Debt

<Financial Crisis>1st stage: subprime mortgage crisis in the U.S.

2nd stage: sovereign debt crisis in Europe

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II. Big Picture2. Starting locally but global impact

Subprime mortgage crisis in the U.S. had impacts not only financial institutions in the U.S. but also in Europe.

European sovereign debt crisis saw bankruptcy of MF Global Holdings in the U.S.

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II. Big Picture2. Starting Locally but global impact

As for real economy, more impact on export reliant countries than the U.S. or Europe.

Export (% change from preceding period)

Source: United Nations

II. Big Picture2. Starting Locally but global impact

Distress of European banks could lead to pulling out of their money from developing countries

Bank Claims On Developing Countries

Source: BIS , International Bank Claims (24 countries)

II. Big Picture3. Confidence in Government at Stake

Rescue plan for Greece was agreed; however, there remains uncertainty regarding its implementation

Italy was placed under IMF surveillance

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III. Lessons from the Financial Crisis

1. Macro economic role for deposit insurance system

2. Deposit insurance system without government money

3. International cooperation and coordination

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III. Lessons from the Financial Crisis1. Macro economic role

for deposit insurance system

Protection of Depositors(microeconomic role)

+Stability of the financial system

(macroeconomic role)

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III. Lessons from the Financial Crisis1. Macro economic role

for deposit insurance system

Strengthening of deposit insurance system

Division of labor and cooperation among safety-net players

Japan’s experience

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III. Lessons from the Financial Crisis2. Deposit insurance system without government money

Shaky confidence in government could mean no public money for bank resolutions in time of crisis.

Reinforcement of deposit insurance fund => Ex-ante collection of premiums => Targeting fund level => Premium rates

Living will => No Too Big To Fail financial institutions Japan’s experience

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III. Lessons from the Financial Crisis3. International Cooperation and Coordination

Cross-border cooperation is necessary to deal with globalized financial system

Coordination and harmonization of deposit insurance system is essential to prevent cherry-picking

Japan’s experience

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IV. Conclusion

Greater role is expected for the deposit insurer as one of the safety-net players

IADI has much to do to promote cooperation

and harmonization of the deposit insurance system globally.

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