The Role of Deposit Insurance System in Times of Financial Crisis: Can Increased Coverage Limit Sustain Banking Stability? The Evidence of Former Soviet States

Abstract

The article aims to observe the effect of Deposit Insurance System (DIS) over the behavior of depositors and their decisions about early withdrawals in times of financial crisis in those former soviet countries where the system already operates. The observation is to find out whether DIS is effective or not in sustaining banking system stability and confidence of depositors toward banking institutions in times of financial crisis if the design of the system is properly modified. In the paper the modification implies extended insurance coverage limit or full coverage. The evidence of countries under the study show extended coverage limit to be an effective
stabilizing element of the system in times of crisis.