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January 2014

Deposit Insurance and the Global Financial Crisis

Asli Demirgüç-Kunt's picture

How does deposit insurance affect bank stability?  This is a question that has been around for a while but has come up again after the global financial crisis.  In response to the crisis, a number of countries substantially increased the coverage of their safety nets in order to restore market confidence and to avert potential contagious runs on their banking sectors.  Critiques worry that such actions are likely to further undermine market discipline, causing more instability down the line. My earlier research on this issue suggests that on average deposit insurance can exacerbate moral hazard problems in bank lending, making systems more fragile.  In other words, particularly in institutionally under-developed countries, banks have a tendency to exploit the availability of insured deposits and increase their risk, making the financial system more crises prone.  This is ironic since deposit insurance is supposed to make the systems more stable, not less.

But what if the impact of deposit insurance on stability varies depending on the economic conditions? Does deposit insurance help stabilize banking systems by enhancing depositor confidence during turbulent times?

Yemen: Looking beyond the National Dialogue

Wael Zakout's picture
Yemen
Boy with Flag. Photo credit: Al Jazeera English

With the successful conclusion of the National Dialogue Conference (NDC), Yemen has demonstrated both to the region and the world that there is another way of dealing with conflict and grievances. One clear outcome of the NDC is a political transition  based on dialogue rather than confrontation. The challenge now will be to convert this outcome into meaningful results for the people of Yemen. 

Migration & Remittances News, January 23, 2014

In Pictures: China's annual human migration
Shanghai, China - Hundreds of millions of people, including migrant workers and students, will crisscross the country to reunite with their families during the Chinese Lunar New Year Festival. For most of them, it's the only time of the year when they can see their loved ones. Some 3.5 billion journeys will be made in just over a month, exacerbating existing problems with inter-city transport in China.

Saudi Deports Quarter Million Migrants in 3 Months
Saudi Arabia says it has deported "more than a quarter million" foreign migrant workers from the kingdom over the past three months.

Helping Green Business in the Caribbean

Herbert Samuel's picture


Increased hurricane activity and rising sea levels are well-known effects of climate change, and they prompt solemn head-shaking when we read about them in reports. But in the Caribbean they are part of a terrifying reality that is happening now: This reality was demonstrated again by recent flooding and landslides in the Eastern Caribbean that left 20 dead and hundreds of millions of dollars in damage.

Friday round up: Q&A with Kaushik Basu, Challenges to Growth, Income Equality and Aid

LTD Editors's picture

India's Telegraph newspaper reports on a Q&A Kaushik Basu had recently with economist/filmmaker Suman Ghosh.

Nobel laureate Michael Spence writes on Project Syndicate about The Real Challenges to Growth.

World Bank President Jim Yong Kim shares his views on LinkedIn on how income inequality ought to be discussed at Davos.

Prospects Daily: Developing-country currencies continue to tumble, Polish unemployment rate at seven-month high, Brazil’s consumer confidence falls to lowest level since June 2009

Global Macroeconomics Team's picture
Financial Markets…Developing-country currencies continued to tumble on Friday, extending their worst sell-off in five years, as growing concerns over Chinese growth sparked great anxiety about the prospect of developing countries’ economies, compounded by country-specific political and financial problems. Notably, the Turkish lira plunged to a fresh record low of 2.3360 per dollar even after the country’s central bank’s intervened directly in foreign exchange markets for the first time in more than two years.

‘Working for the Few’: Top New Report on the Links between Politics and Inequality

Duncan Green's picture

As the world’s self-appointed steering committee gathers in Davos, 2014 is already shaping up as a big year for inequality. The World Economic Forum’s ‘Outlook on the Global Agenda 2014’ ranks widening income disparities as the second greatest worldwide risk in the coming 12 to 18 months (Middle East and North Africa came top, since you ask).

So it’s great to see ‘Working for the Few’, a really excellent new Oxfam paper by Ricardo Fuentes and Nick Galasso, tackling an issue best summed up by US Supreme Court Justice Louis Brandeis in the aftermath of the Great Depression, ‘We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.’ i.e. the politics of inequality and redistribution.

The Brandeis quote is particularly relevant because this time really is different. After the 2008 global meltdown, we have not seen anything like the New Deal, in terms of redistribution or reform. The paper argues that this is because political capture by a small economic elite is much more complete this time around.

Inequality Isn’t Hopeless. But You Need a Plan

Jim Yong Kim's picture

DAVOS, Switzerland – When we talk about particularly difficult issues at the World Bank Group, I always ask my team a simple question: What’s the plan?

If they have a plan, the next question I ask is whether the plan is serious enough to match the scale of the problem. Here at the World Economic Forum at Davos, one of the main issues before us is an extraordinarily tough one – how do we reduce the growing income inequality around the world? Income inequality has grown to enormous proportions but my question to World Bank staff and folks here in Davos is the same: What’s the plan to lessen income inequality across the world?

Income inequality can appear to be an intractable problem. But the fact is we already know a lot about how economies can grow in a way that includes even the poorest. We need a plan to tackle inequality and we think there are at least five things that we can do right now that could help.


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