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The purpose of this paper is to explore the full potential of an effective deposit insurance system. The current financial crisis in Europe has arguably casted fresh doubt on the role and need for deposit insurance. In this regard, the deposit insurance system’s rationale is a key starting issue in order to fully understand its design and role within a financial safety net system.

Using the UK regulatory regime as the main reference point, the deposit insurance system’s objectives are divided into two broad categories: depositor protection and financial stability.

It is argued that a deposit insurance system could only be effective if designed to perform key regulatory objectives. Otherwise, authorities will keep resorting to other rescue measures, as this system will never be well equipped to respond to a bank failure.

Notwithstanding recent regulatory reforms, there is still a lack of clear objectives and, thus, a clear profile for the Financial Services Compensation Scheme, as the UK deposit compensation scheme. In light of systemic risk and increased demands on prudential banking regulation, the UK deposit insurance system should be reformed to perform significant regulatory objectives.

The further reform of the UK deposit insurance will enhance depositor protection and financial stability, especially amid the euro-crisis.

An effective reform of deposit insurance requires a clear role-setting for deposit insurance. To this end, this paper offers a comprehensive analysis of all regulatory objectives that the post-crisis UK deposit insurance system should serve.

Having been hailed as the most important contribution to stabilising the US financial system after the 1929—33 crash, deposit insurance is now being blamed for financial destabilisation, particularly in emerging markets. This paper focuses on the relationship between deposit insurance and systemic stability in the banking system, drawing on recent experience in the USA, Europe and Japan. The conclusion is that if there is an embedded perception that in the last resort depositors will be protected beyond insurance limits then market‐orientated solution to the problems of ‘moral hazard’ and excessive risk taking cannot work.

This paper presents an integrated regulatory model to protect depositors in the event of a retail financial institution run or failure. In Australia, many of the factors included in this model are either not in existence, or if in existence have not been fully implemented. A review of regulatory arrangements for retail financial institutions in Australia is warranted in the light of these deficiencies.

Late in 2001, the Financial Services Authority (FSA) introduced a new set of arrangements for deposit protection in the UK. While the changes involve a welcome improvement on previous arrangements, much more could be done to enhance their overall cost‐effectiveness. This paper explains the flaws in previous and current arrangements and, using a relatively crude but nevertheless objective measure of the extent of their compliance with International Monetary Fund (IMF) best practice ‘rules’, compares their degree of ‘incentive‐compatibility’ (or economic efficiency ‐ ie the extent to which they minimise the problems created by adverse selection, moral hazard and principal/agency conflict) with the counterpart schemes operating elsewhere in the European Union and beyond. In this way, areas for future improvements are identified, which will ideally require accommodating changes in the guiding Deposit Guarantee Schemes Directive.

This paper aims to develop a novel approach to Islamic deposit insurance, specifically addressing the deficiencies in the current prevailing models of Islamic deposit insurance.

The analysis in this paper adopts a qualitative content analysis approach to review the existing literature on Islamic deposit insurance and propose a new model.

The proposed model includes a revised scheme. In the event of a bank failure, the funds used to reimburse depositors of the failed bank are divided into two distinct categories. The first category includes nonrepayable premiums that have been previously paid by the failed bank and managed by the Islamic deposit insurance agency or Islamic deposit insurance corporation. The second category comprises qard hasan, an interest-free loan provided by the Islamic deposit insurance agency or Islamic deposit insurance corporation using the deposit insurance funds from the collective pool of premiums of other banks.

The proposed model ensures that well-managed banks are not unfairly burdened by the failures of their poorly managed counterparts, thus preventing a sense of unfairness and inefficiency. Implementing the proposed model may result in higher business practices and risk management standards, ultimately leading to better depositors’ protection and banking system’s stability.

This paper offers a significant contribution to the limited literature on Islamic deposit insurance. The proposed model enriches the discourse and offers valuable insights for the future development of Islamic banking.

The financial crisis that hit countries worldwide in 2007 tested and tried deposit guarantee schemes (DGSs) and their ability to protect consumers’ bank deposits. The crisis also served as a reality check for regulators, institutions and the general public alike. Against this backdrop, there was a significant rationale by governments and regulators to protect consumers and at the same time maintain financial stability through expansion of coverage offered in existing DGS arrangements or setting up such a scheme where this was not already in place.

Consumers need other possible safety net in addition to the already set-up lender-of-last resort facilities provided by central banks, banking supervision regulations, assistance granted by international institutions such as the International Monetary Fund and European Central Bank and also the recently enacted EU Bank Recovery and Resolution Directive (BRRD).

In this chapter the authors evaluated whether the launch of a European Deposit Insurance Scheme (EDIS) as a single deposit guarantee in Europe which is now being recognised as one of the three main pillars, together with the single supervisory and resolution mechanisms, would enhance depositors’ protection in times of banking crisis and also reinforce financial stability in the EU as part of the proposed Banking Union.

The chapter made reference to academic literature and also recent EDIS political dossier to outline the developments. Apart from political insensitivity to the proposed EDIS, the chapter also concluded that the introduction of EDIS raises questions about moral hazard amongst banks in the EU, issues on bank’s contributions during the transition period and difficulty in comparing banks across EU countries through banks’ deposits and risk profiles.

The purpose of this paper is to offer an initial assessment of the Northern Rock (NR) crisis.

The paper describes the context of financial market turmoil and the multi‐dimensional aspects of the crisis.

The central finding of this paper is that the NR episode is a multi‐dimensional problem and reflects a complex set of inter‐related problems.

The paper brings together some of the strands of the analysis and addresses several lessons that can be learned.

This paper aims to analyze the development of European Deposit Insurance (DI) and assess the recent development at the EU level to establish a European Deposit Insurance Scheme (EDIS) in the context of a more integrated financial framework: the Banking Union (BU).

The author uses literature review and empirical evidence to analyze the dynamic interaction among European governments in an effort to attract aggressive deposits with severe repercussion for financial stability.

The paper argues that a liquidity providing EDIS would render regulatory subsidy and rent-seeking behavior persisting by allowing national policies to be pursued with considerable discretionary power and in the context of increasing competition for deposits. This would run contrary to the BU objectives and constitute a major failure of the program.

The findings of the study can be helpful in understanding the DI policies pursued by European governments and their implications.

To the best of the authors’ knowledge, this is the first study that examines the interactions among European governments in pursuing DI policies and assesses the implications of EDIS.

Bank regulation tends to develop as a reaction to bank insolvencies. Much of the detail of regulatory measures, comprising EU Directives, statute and guidance from the Bank of England is intended to enable banks to avoid collapse. The Bank of England's role and duties as prudential supervisor of banks is much more ambiguous than would be expected from this pattern, however. The Bank's effectiveness as supervisor has been subject to criticism since the Barings debacle, calling into question the purpose of bank regulation. After explaining the existing legislative and practical background to supervision of troubled banks, this paper considers the importance of protecting depositors as a guiding principle of regulation and explores possible developments.

The various pre‐trial stages of these complex proceedings have been discussed in previous issues of this Journal in Vol. 5, No. 1, pp. 70–72, Vol. 7, No. 3, pp. 274–280, Vol. 8, No. 4, pp. 359–364 and the factual background explained. Depositors in the UK branch of BCCISA (part of the Bank of Credit and Commerce International group which collapsed in 1991 leaving large scale losses) had brought actions for damages in respect of their uncompensated losses against the Bank of England (the Bank) in relation to its discharge of its statutory functions under the Banking Act 1979. They argued (1) that the Bank's licensing as a deposit‐taker and subsequent supervision of BCCI amounted to misfeasance in public office and/or (2) that they had, under European law, enforceable rights against the Bank conferred on them by the First Council Banking Co‐ordination Directive (77/780/EEC) which the Banking Act 1979 implemented in the UK. In May, 2000 the House of Lords definitively settled as a matter of law the second ground of the claimants' argument ruling that the European Directive in question did not have the effect of conferring rights in damages against the Bank on the depositors. In the same judgment the House of Lords ruled as a matter of law that the essential elements of the tort of misfeasance in public office (which by this stage is the only possible legal ground of claim available to the depositors) were to be found ‘where a public officer acts knowing that he has no power to do the act complained of and that the act will probably injure the [claimant]. It involves bad faith inasmuch as that the public officer did not have an honest belief that his act was lawful’ (per Lord Steyn, House of Lords judgment of 18th May, 2000 in these proceedings). This ‘reckless indifference’ which must be proven to exist for a claim against the Bank to succeed must be judged in a subjective sense, their Lordships ruled last year, so that the depositor claimants needed to show knowledge on the part of the Bank that the decision of the Bank would probably damage the Appellants. The question of whether or not the facts pleaded by the claimants reveal a sustainable cause of action against the Bank or whether, as the Bank had argued throughout, they did not and the action ought to be struck out without proceeding to full trial was referred to another House of Lords hearing. It was from that subsequent hearing on whether or not the claim should be allowed to proceed to full trial of the substantive issue of the Bank of England's alleged liability that this decision was made.