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Ms. G. G. Garcia
The paper surveys the characteristics of explicit systems of deposit insurance in 68 countries. It compares these actual practices with a set of best practices that has been adopted by IMF staff for their advice to member countries. These best practices seek to establish a system of deposit insurance that provides incentives for all parties—whether they are directly or indirectly affected by the guarantee—to keep the financial system sound. The paper discerns some convergence toward best practices in recent years, but notes several areas where improvements in the incentive structure are still necessary.
Ms. G. G. Garcia

exposure to foreign exchange risk. Forty-five DIS do not cover interbank deposits, and 16 guarantee only, or mainly, household deposits. Evidently, a large number of countries find it worthwhile to undertake the administrative burden of giving preference to less sophisticated depositors. Coverage limits The coverage limit should be low enough to encourage large depositors and sophisticated creditors to discipline their bank. Sophisticated depositors exert this discipline by demanding higher deposit rates from weaker banks in compensation for the higher risk of loss