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Home About Deposit Insurance Glossary of Terms
Glossary of Terms for Deposit Insurance Print
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Glossary of Terms for Deposit Insurance
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The following are terms often used by Deposit Insurers in describing aspects of their business:

Adverse selection - The tendency for higher-risk banks to opt for deposit insurance and lower-risk banks to opt-out of deposit insurance when membership in a deposit insurance system is voluntary.

Bank run - A rapid loss of deposits precipitated by fear on the part of the public that a bank may fail and depositors may suffer losses.

Benchmark - A standard or guideline to which other items or processes can be compared.

Blanket guarantee - A declaration by the government that all deposits and perhaps other financial instruments will be protected.

Bridge bank - A temporary bank established and operated to acquire the assets and assume the liabilities of a failed institution until final resolution can be accomplished.

Coinsurance - An arrangement whereby depositors are insured for a pre-specified portion, less than 100 percent of their deposits.

Collateralisation - The taking of a mortgage, pledge, charge or other form of security by a creditor over one or more assets of a debtor.

Contagion - The spread of an individual bank run to several other financial institutions.

Corporate governance - The processes, structures, and information used for directing and overseeing the management of an organisation.

Depositor priority - The granting of preferential treatment to depositors such that their claims must be paid in full before remaining creditors can collect on their claims.

Differential premium/risk-adjusted differential premium - A levy on a bank assessed on the basis of that bank's risk profile.

Disclosure - A fact, condition, or description that is revealed clearly and publicly.

Ex-ante funding - The accumulation of a fund to cover deposit insurance claims in anticipation of the failure of a member bank.

Ex-post funding - An assessment levied after the failure of a member bank to provide funds to cover deposit insurance claims.

Financial safety net - Usually comprises the deposit insurance function, prudential regulation and supervision, and the lender-of-last-resort function.

Forbearance - To grant an extension of time to certain distressed banks from minimum regulatory requirements.

Foreign bank- A foreign-bank subsidiary is incorporated as a separate entity in the host country. A foreign-bank branch, on the other hand, is an extension of the foreign bank itself into a host country. Foreign-bank branches and subsidiaries may be subject to different rules and supervised differently by a host country.

Individual Account - An account owned and controlled by one person rather than corporation or other legal entity.

Joint Account- An account owned/controlled by two or more persons for their mutual benefit.

Least-cost resolution - A procedure that requires the deposit insurer or other designated entity to implement the resolution alternative that is determined to be less costly to the system than all other resolution alternatives, including the liquidation of the failed bank.

Lender-of-last-resort function - The provision of liquidity to the financial system by a central bank.

Limited-coverage deposit insurance - A guarantee that the principal and the interest accrued on protected deposit accounts will be paid up to a specified limit.

Mandate - A mandate is a set of official instructions or statement of purpose of a firm.

Market discipline - A situation where depositors or creditors assess the risk characteristics of a bank and act upon such assessments to deposit or withdraw funds from a bank.

Moral hazard - The incentive for additional risk taking that is often present in insurance contracts and arises from the fact that parties to the contract are protected against loss.



Please Note: This website is designed to give general information about deposit insurance and should not be relied upon as definitive. The actual deposit insurance coverage provided by BDIC following the failure of a member institution is based on the deposit account records at the failed member institution and is governed by the Deposit Insurance Act.