金融作业Deakin MAF202.docx

金融作业Deakin MAF202.docx

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金融作业DeakinMAF202

LetterofTransmittal

Tothosewhoareconcernedaboutthereport,

Thisisanoverseastudent’spaperworkrelatedtodepositinsurancewithinthefinancialinstitutionsallovertheworld.Withthedevelopmentofthework,threecountriesareselectedtosupporttheauthor’sideasofdepositinsurance.Tofullyconnectwiththecurrenteconomicissue,anadditionaldiscussionintermsofthenecessityofdepositinsuranceiscarriedoutwithsometentativerecommendationsandsuggestionsattheclosureofthework.

Ifthosewhoareconcernedaboutthereporthaveanysuggestionorrecommendation,theycanwritetomebasedonthe

E-mailaddress:

jhtan@.au

Sincerelyyours,

JianHTan

TableofContents

ExecutiveSummary3

Introduction4

DepositInsuranceforFinancialInstitutions5

TheGuaranteeinAustralia6

DepositInsuranceinIcelandandNewZealand7

CriticsontheNecessityofADepsotiInsurance8

TentativeRecommendationsandSuggestions9

Conclusion9

References11

DepositInsuranceforFinancialinstitutions

ExecutiveSummary

Withtheoverwhelmingtendencyofglobalization,thefinancialactivitiesuniversallyaremuchmorefrequentthaneverbefore,whichaccordinglyaddsmoreriskstothefinancialorganizationsandafterwardsendangerstheinvestors’capitalincludingtheordinarypeople’ssavings.Thispaperistobeunfoldedwiththefocusondepositinsuranceforfinancialinstitutions.Withanin-depthanalysisanddiscussionofthedepositinsurancesituationsinAustralia,IcelandandNewZealand,theauthorexpectstobettertheaudienceunderstandingsoftheeffectsofdepositinsurance.Giventhecurrentsituationofoureconomy,criticsonnecessityofdepositinsurancewillbefullyprovided.Attheclosureofthepaper,sometentativerecommendationsandsuggestionsintermsofdepositinsurancewillbeoffered.

Introduction

Theexistenceofeconomyisoriginatedfromexchangeactivities.Withthefrequencyofexchangingactivitiesisgreatlygoingup,somefailedbusinessactivitieswillbefreshmemoriesforthelosers,especiallywhensuchanightmareexperiencehappensinthefieldoffinancialinstitutions,theinvolverswillbeexpandedandtheimpactwillbeworse,fortheyaredealingwithmoneymostofwhichhasbeencollectedafterall.Situationscanbeevenworse,forwiththeoverwhelmingdevelopmentofglobalization,theeconomyisconnectedcloselytoeachother.Oncethereissomethingwronginaspecificplace,thenabutterflyeffectmaygoaroundtheworld.Theworldwidefinancialcrisisof2008isthebestproof.Asaresult,theinsurancerelatedtofinancialactivitiescanneverbemorestrengthened.

Thereportistobeunfoldedfromtheperspectiveofdepositinsuranceoffinancialinstitutions.Tosomefinancialinstitutions,depositisthesourceoftheircapitalandmotiveofdoinganybusiness.Thereby,financialinstitutionstendtotrytheirbesttodriveinasmuchdepositastheycan.However,thedepositinsuranceisnotoperatedwellintheabsolutemajorityoffinancialinstitutions.Thoughsomeprincipleshavebeenformulatedwithinthefinancialindustryandrelatedlawsandactshavebeenissued,someofthefinancialinstitutionscannotdenythetemptationofgreatprofitsatahighriskhidbehind.Financialcrisistookplaceoneafteranothereveryotheryearinthemoderntimes,whichwereallrelatedtofinancialinsurance,depositinsuranceinparticular（Howard2010&Jackson2010）.Thereisanecessity,asaresult,tofullyanalyzethedepositinsurance.Thereportistodeveloptheauthor’sideasonthedepositinsurancewiththehelpofanin-depthanalysisofthreecountries,Australia,Iceland,NewZealandinthefieldbasedonthepreviousscholars’constructiveresearches.

Withthedevelopmentofthereport,theauthoraimstobettertheaudienceunderstandingofthecurrenteconomicsituationwiththehelpofcriticsonthenecessityofdepositinsurance.Attheclosureofthereport,sometentativesuggestionsandrecommendationswillbeofferedtothefinancialinstitutionsandinvestorsasfarasthecurrenteconomicsituationisconcerned.

DepositInsuranceforFinancialinstitutions

Astablefinancialsystemisfavorabletohelppromotegrowthineconomicactivities,whichisalsoablessingforoursustainabledevelopment.Astablefinancialsystemcanoffersmoothflowoffundsbetweensaversandinvestorsduetotheparticipationoffinancialintermediaries,marketsandmarketinfrastructure.However,suchastablefinancialsystemishardtoestablishandkeep.Instablefinancialsystem,instead,canhavepotentiallydamageimplicationsfortherealeconomy.Asaresult,itisaforwardlookingtasktokeepfinancialstability,whichrequirestheparticipants,thefinancialinstitutionsinparticulartoidentifyvulnerabilitieswithinthefinancialsystemandwherepossibletakemitigatingaction.

Oneofthevulnerabilitiesisrelatedtodeposit.Vulnerabledepositcanleadtomorevulnerableeconomicsituation,andevenanuncontrollablefinancialcrisis.Asaresult,greatimportancehasbeenattachedtodepositinsurance.According,threeinfluentialcountriesintheworldhavebeenselectedasourcasestostudythefinancialmanagementwithinfinancialinstitutionsfromtheperspectiveofdepositinsurance,thatis,Australia,IcelandandNewZealandtoseewhetherthedepositinsurancehasbeenplayinganimportantpartintheeconomicvulnerability.

Explicitdepositinsuranceisameasureimplementedinmanycountriestoprotectbankdepositors,infullorinpart,fromlossescausedbyabank’sinabilitytopayitsdebtswhendue.Depositinsurancesystemsareonecomponentofafinancialsystemsafetynetthatpromotesfinancialstability.Ittakesondifferentformsindifferentcountriesbutplaysimilarpartsinfinancialinstitutions（Geroge2000,Ronald1996&David2006）.

TheGuaranteeinAustralia

Australiahasbeendoingagoodjobintheeconomicfieldandplayingaleadingpartintheglobalization.However,thedeepertheeconomyisgoing,themoreriskstendtoappear.Despitetheirrelativelygoodperformance,AustraliabanksdidnotescapefromtheslumpbecauseoftheacuteuncertaintyaboutthehealthoftheglobalbankingsystemthatwasgreatlyaffectedbythecollapseofLehmanBrothersinSeptember2008.Suchuncertaintyresultedinpressuresonthecostandaccesstothefunding,formorecapitalmarketinvestorsanddepositorstendnottotrustthecurrentfinancialinstitutions,becauseintheirmind,abankofgreatinfluenceallovertheworldhasjustcollapsed,andthecollectedmoneyweregone.Theyfeltunsafefortheirmoneyinthebank.

Depositors’faithinbankswasdropping.Theywereunsureabouttheeconomy.However,thegovernmentaswellasthefinancialinstitutionswassoeagertogetoutoftheslump.Theyneededmoney.Butthedepositorsdidnotwanttoputtheirmoneyinthebanks.Inaddition,thegovernmentactuallywasdreadthatfinancialinstitutionsinAustraliawouldgothesamewaywiththeLehmanBrothers.Thereby,theAustraliaGovernmentannouncedguaranteearrangementsfordepositsandwholesaleborrowing,followingsimilarannouncementsinsomeothercountries.Withtheannouncement,thegovernmenthopesthatontheonehand,moredepositorswouldliketodeposittheirmoneyinthebankstoactivatethecountry’seconomywithreassurance,andontheotherhand,thearrangementscanlimitthefinancialinstitutionstodriveinlegaldepositsothattheAustraliaeconomywillgrowhealthilyandgetoutofthecrisis.

However,thearrangementsdobringaboutsomeadverseeffectstotheAustraliaeconomy.Abankguaranteeisaninstrumentwhichbusinesspartnerscanusetostrengthenandsecureanobligationintheircontract（Agasha2003）.Itaimstobebeneficialtothedepositorsorcapitalinvestors,buttheguaranteescaninduceexcessivegearingandleadtotheincorrectmeasurementofcostofcapital.Inaddition,somefinancialsectorsmaymakefalseguaranteetotakearisktogainmoreprofits.Suchguaranteescanhaveadverseeffectsbycreatinganincentivetodefault.BecausebanksinAustralianeedguarantees,moreillegalcollectionofmoneyamongtheinvestorsmayarise.Thiswilldefinitelyendangerthecountry’shealthyeconomicgrowthanddevelopment.Inordertopreventsuchillegalandendangeringactionshappening,themonitoringmanagementshouldbestrengthenedandmoreeducationalworkshouldbedistributedupontheinvestorsinordertoleadthemtohealthyinvestment.

DepositInsuranceinIcelandandNewZealand

Duringthisglobalfinancialcrisisof2008,IcelandandtheUKcanbeconcludedthemosttraumatizedcountriesintheworld,Icelandinparticular.ThefinancialsystemwasalmostdestroyedinIceland.PeopleinIcelandhadnofaithintheireconomyandbanks.TheywereontheedgeofdesperationbaseontheinvestigationofHouseofCommonsTreasuryCommittee（2009）.However,depositinsuranceinIcelandwashandledbyDepositors’andInvestors’GuaranteeFundandcoveredaminimumof20,887euros.Thoughthenumberwasstillinsufficienttocoverthebankfailuresof2008Icelandicfinancialcrisis,itdidexertsomepositiveeffects.Tosomeextent,thecaseinIcelandshowsthelimitsofdepositinsuranceinprotectingagainstsystemicfailure.Thereby,thepoordepositinsuranceisnottheonlyfactorleadingtofinancialcrisis,butthegoodmanagementofdepositinsuranceistoagreatextenttopreventthegreatdamageproducedbyfinancialcrises.

AsacloserneighbortoAustralia,NewZealand,amemberofEU,wasgreatlyimpactedbythefinancialcrisisof2008.Thegovernmenthasannouncedthatanopt-inschemeforretail