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Deposit insurance Norway
Norway
Deposit insurance in Norway is handled by the Norwegian Banks' Guarantee
Fund (Bankenes sikringsfond) and covers deposits up to 2 million NOK
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Explicit deposit insurance is a measure implemented in many countries to
protect bank depositors, in full or in part, from losses caused by a
bank's inability to pay its debts when due. Deposit insurance systems
are one component of a financial system safety net that promotes
financial stability.
Why it exists
Banks are allowed (and usually encouraged) to lend or invest most of the
money deposited with them instead of safe-keeping the full amounts (see
fractional-reserve banking). If many of a bank's borrowers fail to repay
their loans when due, the bank's creditors, including its depositors,
risk loss. Because banks rely on customer deposits that can be withdrawn
on little or no notice, banks are prone to a Bank run, where depositors
seek to withdraw funds quickly ahead of a possible bank insolvency.
Because banking institution failures have the potential to trigger a
broad spectrum of harmful events, including economic recessions, policy
makers maintain deposit insurance schemes to protect depositors and to
give them comfort that their funds are not at risk. |
Deposit insurance was formed to protect small unit banks in the United
States when branching regulations existed. Banks were restricted by
location thus did not reap the benefits coming from economies of scale,
namely pooling and netting. To protect local banks in poorer states, the
Federal government created deposit insurance.
Many national deposit insurers are members of the International
Association of Deposit Insurers (IADI), an international organization
established to contribute to the stability of financial systems by
promoting international cooperation and to encourage wide international
contact among deposit insurers and other interested parties, in
particular, IADI.
Detractors of deposit insurance claim the schemes introduce a moral
hazard issue, encouraging both depositors and banks to take on excessive
risks. Without deposit insurance, banks would compete for deposits
because depositors would prefer safe banks over risky banks to guard
their money. With deposit insurance, banks can take excessive risks
because depositors do not fear for their deposits safety and thus do not
move their money to safer banks. The risks are shared by all banks, be
they safe or risky
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