Study Of U.S. Deposit Insurance System

The banking system create credit money and can influence economic growth rateand unemployment rate.However,as the banking industry has a high debt to capitalratio,it's operation risk is very high,so public faith in the banking system is key tothe stability of banking system.Payment suspention,last loans provided by the centralbank and deposit insurance can ensure public faith in the banking system,but depositinsurance can do better in enhancing public faith and eliminating bank runs.Deposit insurance system itself can create the problrm of moral hazard andadverse selection.Deepositors may no longer bother to monitor financial institutions,financial institutions may choose to invest in risker projects,and financial regulatorsmay no longer work hard to make sure financial institutions are good and sound.U.S. deposit insurance system has been functioning efficiently since itsconstrution.The study of U.S. deposit insurance system can help China a lot when weconsider construting our own deposit insurance system.U.S. deposit insurance system has a special institution,that is Federal DepositInsurance Corporation.As a government institution,FDIC enjoy high trust from thepublic.American also take other measures to ensure its independence andaccountability.So,FDIC can work in a manner affecting the market less. Ameriangovernment set objectives for the FDIC,and make sure it has sound corporategovernmance structure.American deposit insurance system force nearly all thefinancial institutions to join the deposit insurance system.As regards deposit insurancefunds,FDIC charge premiums based on each financial institutions risk.It also hasemergency channels to ensure its sufficiency. Too high a deposit insurance scope willboost moral hazard,too low a deposit insurance scope will boost bank runs. Americantake public knowedge in finance in to consideration and set a relativily high depositinsurance scope,and they keep adjusting it according to different circumstances, which prove very good.FDIC has high efficiency in its repaying to insureddepositors,and it has many measures to handle bank failures. High efficiency in itsrepaying will decrease moral hazard of regulators and liquidity loss ofdepositors.FDIC may sell a bank,close a bank,or may provide loans to problembanks,depending on different circumstances.American financial regulation alsofacilitate the operation of deposit insurance.When China institute deposit insurance system,we must take measures toenaure the independence and accountability of deposit insurance institution.We mustset proper deposit insurance scope to counter adverse selection and moral hazard,which I beliieve,should be high.We should set enough laws to help improve depositinsurance institution's efficiency in handling failing banks and repaying depositors,we must also improve our financial regulation.