Deposit insurance programs offer deposit holders insurance protection. This protection covers losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors and has to go in for liquidation. However, applying this scheme could be associated with its costs and risks

Search and discuss the above statement by taking one of the following positions.

A. Deposit insurance could exacerbate moral hazard risk where management and shareholders will seek higher returns by assuming more risk.

B. The deposit insurance scheme is in effect in my country and things are good. I don’t think there will be any problem.

C. I don’t think we need deposit insurance. We need prudent bank management to maintain a good liquidity management system.

D. I have my reflection and input on this issue.

Answer rating: 100% (QA)

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