The IADI-Africa Region Annual ConferenceThe Benefits of Deposit Insurance in Africa

Design Features of Effective Deposit Insurance System

Kevin ChewSenior Manager, MDICTanzania, 24 July 2010

Four Common Essential Elements of Effective Deposit Insurance Systems

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Clear and Precise Mandate (1)

• Overlaps in roles and responsibilities.• Without clarity:– Unproductive overlaps/duplication of

roles/working at cross purposes (undermines confidence)

• With clear differentiation:– Financial system as a whole is stable– Policy decisions can be made quickly

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Clear and Precise Mandate (2)

• Rules for cooperation provided for by laws• Malaysia – enables MDIC and BNM to enter into

a SAA• The SAA:

Formalises coordination of actions and information sharing Forms basis for clear division of labour and areas for

coordination

• Becomes important if DIs have powers to intervene and resolve troubled banks.

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Two Aspects of Operational Independence

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MDIC’s Governance Structure Fosters Independence

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Benefits of Being Operationally Independent

• More credible in eyes of general public• Seen as good practice• Minimises likelihood of regulatory forbearance• Minimises likelihood of regulatory capture • Gives policy decisions greater legitimacy • Can undertake financial stability functions

quickly that allow for more rapid and effective response to crisis situation

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MDIC Governance Features that Promotes Accountability

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• Separation of Board, CEO and Management• Strategic Planning – Operationalise Management’s

Accountability to Board• Board Governance Policy – 15 standards that deals with

Board’s roles and responsibilities• Strong and independent internal audit function• Enterprise risk management function• Checks and balances on CEO by Board• MDIC required to have annual financial statements verified

by independent external auditor and submitted to Parliament

• Separation of Board, CEO and Management• Strategic Planning – Operationalise Management’s

Accountability to Board• Board Governance Policy – 15 standards that deals with

Board’s roles and responsibilities• Strong and independent internal audit function• Enterprise risk management function• Checks and balances on CEO by Board• MDIC required to have annual financial statements verified

by independent external auditor and submitted to Parliament

Transparency (1)

• Refers to process of informing the public on how the organisation is being governed and managed, what it planned to achieve, and whether goals were achieved.

• Enable interested parties to assess performance and determine whether we achieved our core objective.

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Transparency (2)

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MDIC - Channels of Reporting

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Conclusion

• 4 common elements - clear mandate. independence, transparency and accountability

• At MDIC, these elements underpin MDIC progress in gaining public confidence.

• Official endorsement of its ability and effectiveness, MDIC mandate extended to cover insurance industry.

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Thank You

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