A Study On The Defects Of The Deposit Insurance System

The deposit insurance system is a measure implemented in many countries to promotes financial stability and protect bank depositors. The system will provide protection to depositors when losses caused by a bank’s inability to pay its debts.The deposit insurance system becomes a hot point during the recent global financial crisis. Also, China will implement the deposit insurance system. It will contribute to China’s deposit insurance system to research on the defects of the system.This paper analyzes the defects of the deposit insurance system, point out moral hazard and adverse selection, reduce market efficiency and unfair competition, increase costs existence in many condition. Then introduces and comments on the deposit insurance systems in Germany and The United States. As conclusion, this paper gives suggestions for set deposit insurance system in China with China’s conditions.