Unless a deposit insurance system is structured with clearly defined objectives in mind, it will be difficult for the system to succeed. Whether these objectives can be achieved, however, will depend upon circumstances unique to each country. The Working Group has identified the need for each country working to establish or modify a system of deposit insurance to undertake a situational analysis to assess its prevailing conditions. Through such an analysis, policymakers can identify strengths and weaknesses and pinpoint what measures need to be implemented if the deposit insurance system is to meet its objectives. My message here today is that to remain effective the same type of analysis must be done if we want to keep an established deposit insurance system operating effectively.
Financial systems are dynamic.
Further, long-held assumptions can shift as new information emerges, and time reveals weaknesses in our earlier thinking. There is, therefore, a clear need for ongoing evaluation and validation of the effectiveness of the deposit insurance system, which may require changes after it becomes operational. In the United States, events in the 1980s led to an evaluation of the effectiveness of our system. Between 1980 and 1994 many more banks were closed or received FDIC financial assistance than in any period since the advent of federal deposit insurance. This put severe, though temporary, strains on the FDIC insurance fund.