In the past two decades, in a series ofbanking crises around the world, banks have becomesystematically insolvent. These crises have occurred indeveloped and developing economies alike. To make suchfinancial system breakdowns less likely and to limit theircosts if they occur, policymakers feel the need forfinancial safety nets. These include such policies asimplicit or explicit deposit insurance, a lender of lastresort function of the central bank, bank insolvencyresolution procedures, and bank regulation and supervision.Of these policies, explicit deposit insurance has beengaining popularity in recent years. Since the 1980s thenumber of countries with explicit deposit insurance schemesalmost tripled, with most OECD countries and an increasingnumber of developing economies adopting some form ofexplicit depositor protection. In 1994 deposit insurancebecame the standard for the newly created single bankingmarket of the European Union. Establishing an explicitdeposit insurance scheme became part of the generallyaccepted best practice advice given to developing economies.
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