Improving Banking Supervisory Mechanisms
In the OIC Member Countries
55
Table 22: Restrictions on Entry into Banking Sector
Source: World Bank, Bank Regulation and Supervision Survey
4.2.6 Deposit Insurance Schemes
Deposit insurance is an important aspect of banking system supervision as it prevents bank
runs which triggers system level banking crises, especially when the banking sector’s overall
liquidity is low. On the other hand, it is argued that explicit deposit insurance pave the way for
excessive risk-taking due to moral hazard problem. Despite the importance of deposit
insurance schemes, the fraction of countries with an explicit deposit insurance is 70%, given
the corresponding ratios of 100% in EU-27 countries.
Table 23: Deposit Insurance
Source: World Bank, Bank Regulation and Supervision Survey
Besides the existence of a deposit insurance scheme, power of the insurer in taking legal
actions and controlling banks to mitigate moral hazard problem is crucial for an effective
Survey
OIC
Average
OIC-High
Income
Average
OIC-Upper-
Middle
Income
Average
OIC-Lower-
Middle
Income
Average
OIC-Low
Income
Average
EU-27
Average
United
States
Limitations on
Foreign Bank
Entry/Ownership
2000 3,86 3,90 3,73 3,84 3,86 4,00 4,00
Range 0-4 2003 3,86 3,91 3,74 3,86 3,88 4,00 4,00
2007 3,67 3,89 3,72 3,82 3,85 4,00 4,00
2011 3,50 3,50 3,44 3,48 3,40 4,00 4,00
Entry into
Banking
Requirements
2000 7,65 7,70 7,59 7,75 7,78 7,39 7,00
Range 0-8 2003 7,57 7,52 7,46 7,52 7,58 7,28 8,00
2007 7,90 7,96 7,98 7,95 7,96 7,61 8,00
2011 7,94 7,98 7,99 7,98 7,98 7,69 8,00
Fraction of Entry
Applications
Denied
2000 0,27 0,13 0,10 0,12 0,12 0,12 0,00
(Percentage) 2003 0,25 0,28 0,28 0,22 0,22 0,07 0,01
2007 0,21 0,11 0,11 0,11 0,11 0,01 N/A.
2011 0,21 0,09 0,06 0,10 0,08 0,08 N/A.
Domestic Denials 2000 0,20 0,10 0,07 0,09 0,09 N/A 0,00
(Fraction) 2003 0,34 0,40 0,49 0,36 0,36 N/A 0,02
2007 0,31 0,15 0,15 0,15 0,15 N/A N/A.
2011 0,23 N/A N/A N/A N/A N/A N/A.
Foreign Denials 2000 0,33 0,18 0,14 0,17 0,17 N/A 0,00
(Fraction)
2003 0,37 0,25 0,25 0,21 0,21 0,11 0,00
2007 0,26 N/A N/A N/A N/A N/A 0,00
2011 0,20 0,09 0,06 0,10 0,08 N/A N/A.
Percentage of Yes
OIC
Countries
Selected
OIC
Countries
OIC-High
Income
Countries
OIC-Upper-
Middle
Income
Countries
OIC-Lower-
Middle
Income
Countries
OIC-Low
Income
Countries
EU-27
United
States
Is there an explicit deposit insurance protection
system for commercial banks?
70% 80% 67% 100% 67% 67% 100% Yes