Deposit Insurance And Bank Failure In Kenya: What Lessons Can Be Learned By Supervisors?

Abstract

The approach to deposit insurance (DI) and bank runs suggests the imposition of discipline on bank stockholders and debt holders. It is possible to do this by increasing the level of capital and reliance of market value accounting besides risk adjusted insurance premiums. The discipline to debt holders can be achieved through 'haircuts' for large depositors, and reduction in deposit insurance caps. The discussion of deposit insurance forms the basis of this paper. The paper examines deposit insurance, what it can effectively achieve and where it requires supplementary regulatory mechanism. The final section extracts lessons and where Kenya should direct efforts.


African Journal of Finance and Management Vol.9(2) 2001: 78-90