Funding of Deposit Insurance Systems
Sound funding arrangements are critical to the effectiveness of a deposit insurance system. A deposit insurance system should have available all funding mechanisms necessary to ensure the prompt reimbursement of depositors' claims.
Ex-ante funding requires the accumulation and maintenance of a fund to cover deposit insurance claims and related expenses prior to a member bank failure. In an ex-post system, funds are obtained only once a bank has failed; banks are assessed and contribute at this time.
Member banks should pay the costs of deposit insurance since they and their clients directly benefit from having an effective deposit insurance system. Recent IADI research indicates that ex-ante funding has many more advantages than disadvantages particularly with respect to ensuring prompt reimbursement to insured depositors, the maintenance of public confidence and as a means to avoid the pro-cyclical effects of deposit insurance assessments.