Inmy first part i will talk about the concept of deposit insurance system.Assuring thedeposits made by people in banks is very important to guarantee assurance andtrust in the banking system. In the greatest number of countries, there aremeasure to guarantee the money deposited by the people. The principalinstrument of supplying protection to depositors is deposit insurance.

Thisprincipal instrument provide insurance protection to the deposit of peoples bytaking a premium.when the financialinstitution bankrupt, the depositors will get back their funds. Depositinsurance will be assured up to a certain amount . For obtaining the insuranceto deposit guarantee, the depositors should give money for premium.Even though thefinancial and economic system suffered considerably from the stock market fallof 1929, bank bankruptcy did not intensify until 1930, then always raised overthe next few years, essentially because the FED declined the money supply in antry to support the gold standard, and due to the US government established newtaxes, to balance the budget, which decreased the amount of money owned by thepublic. The problem of unemployment increased quickly and people beganwithdrawing their money creating a large number of bank bankruptcy.Therefore In 1932,the President of United State Roosevelt , established a New Deal that modifiedthe government importantly. The consequence was the Banking Act of 1933, whichestablish a original institution, the Federal Deposit Insurance Corporation ,to cover depositor’s money so that bank rushes of all kinds would finish, andit was significantly advantageous.

The FederalDeposit Insurance Corporation was the first deposit insurance provided in theUS throughout the Great Depression period with the goal and reason of limitingthe widespread bank run that contributed to the important depression.Duringthis period many banks failed and depositor did not get back their money. Thefirst formal system of national bank deposit insurance in United State was setup in 1933 to increase and return protection and trust in the US Bank and to protectsmall depositors.

A large number of country even those where banking systemtrouble has bore the great depression did not follow the United State depositinsurance mechanism.And it was not until the post war period that thismechanism started to expand all over the world.The eighties observed aexpansion in the development ofdeposit insurancewith an important number of industrialized countries and a growing number ofdeveloping countries using deposit insurance.In 1994 the deposit insuranceprotection is a standard in order to create an unique banking market of theeuropean union.The common deposit insurance has become more and more familiarand an increasing quantity of depositor are at this time insured from the riskof bankruptcy.The deposit protectionmechanism has been commonly accepted in the overall countries. A large numberof study observes that, countries putting in place an unique rate for depositinsurance have been decreasing, even though that countries are some problem inthe implementation of risk-adjusted rate of the deposit insurancemechanism.There is however many countries which have chose to do so.

Accordingto the study By the end of 2000, 40.8 percent of countries which haveimplemented a explicit deposit protection mechanism have approved the mechanismof risk-adjusted rates.After theestablishment of federal deposit insurance corporation a large number ofcountries have establish deposit insurance institutions in particular after1960s. The International Association of Deposit Insurance shows , 113 countriesown insurance of deposit in 2015.In, 2009, the president of United state signedthe Helping Families Save Their Homes Act.

This act goes up the amount insuredfrom $100,000 to $250,000 per customer.The federal deposit insurancecorporation covers each customer at each financial institution for up to$250,000.In my second parti will going to ask myself why a country may implement a deposit insurancesystem?A country mayestablish a deposit insurance system for several reasons.The deposit insurancesystem give a guarantee for small depositors.This mechanism improve trust andsolidity in the financial system and incite saving.

The deposit protectionpromote economic development and encourage competition between modest bank and importantbank.Deposit insurancedecrease bank run, banks can use two possible system:the bank suspense thewithdrawal and can create government deposit insurance. The implementation of asystem of deposit protection is one of the solution to prevent the risk of bankcontagion.The establishment of this insurance mechanism could be the only wayto avoid the rushing of deposit.Bank rushes of all kind can create a bank run.

A bank run takes place when an important number of depositors of a bankwithdraw their money at the same time due to problem concerning the bank’ssolvency. As more depositor withdraw their money, the probability of bankruptgoes up.In united statethe federal deposit insurance corporation does try to defend importantdepositors because a large number of depositor are owned by businesses andtheir failure may provoke their bankrupt, with important consequences for thereal economy.Their bankrupt may create rushing of deposit by large depositorson other financial institutions, which may accelerate their bankruptcy.

In my third part iwill going to ask myself how deposit insurance system works.deposit insuranceprotection is usually provided by a government agency and give protection allpeoples that their deposits will be paid back(up to a fixed amount). In Francethis protection is up to 100000 euros.In model of Diamond and Dybvig deposit insurancewould make type 2 depositor wait until periode 2 as it more advantageous forthem.Diamond and Dybvig explained the concept of liquidity insurance.

Wedetermine 3 period and 2 types of agent. Deposit insurance institution protectall deposit accounts like saving and checking accounts, money market depositaccounts and certificates of deposit.On the other side this instrument does notprotect product and services that a financial institution can propose likebonds stocks securities.If the banking system was in a crisis of liquidity or afailure, The Deposit Insurance agency will supply financial backing or directdeposit to reimburse fraction or overall of deposits.In my final part iwill going to ask myself how deposit insurance is funded?In large number ofcountries the insurance mechanism has a fixed premium.The participationcorresponding to the amount of deposit and not depend of the risk taken by thefinancial institution.

The contribution to the insurance company is independenteon the failure risk of the bank.In united statedeposit insurance mechanism is funded of the Deposit Insurance Fund, which ispreserved through the payment of premiums by each financial institution likebank.It is funded on the size of its deposits makes by depositor and the levelof risk the bank faces. The deposit insurance fund is invested in the marketalso , but it takes no financial aid from tax dollars, its mean that taxpayersdo not endure the weight and consequence of deposit insurance.For example inUnited State there is a fund that is dedicated to protecting the depositor bythe federal deposit insurance corporation. The Fund is establish to reimbursethe deposit lost as a result of bankruptcy of a bank.

The protection fund isfinanced money by payments of insurance executed by the banks.Deposit insuranceinstitution covers all deposit accounts like saving and checking accounts,money market deposit accounts and certificates of deposit.On the other sidethis instrument does not protect product and services that a financialinstitution can propose like bonds stocks securities.If the banking system wasin a crisis of liquidity or a failure, The Deposit Insurance agency will supplyfinancial backing or direct deposit to reimburse fraction or overall ofdeposits.