Hiroyuki Obata Deputy Governor Deposit Insurance Corporation of Japan

1. Hiroyuki ObataDeputy GovernorDeposit Insurance Corporation of Japan Role of Deposit Insurance in Bank Resolution Framework – Lessons from the Financial Crisis November 13-16, 2011 JODHPUR, INDIA

2. Today’s Topics • Introduction • Big Picture III.Lessons from the Financial Crisis IV. Conclusion

3. I. Introduction • Sovereign risks in Europe (Greece, Italy) • No Too Big To Failfinancial institutions =>G-SIFIs: strengthened supervision, additional capital requirements 3. Failure of MF Global Holdings

4. II.Big Picture Three Issues • Subprime to sovereign debt • Starting locally but global impact • Confidence in government at stake

5. II. Big Picture1. Subprime to SovereignDebt <Financial Crisis> • 1st stage: subprime mortgage crisis in the U.S. • 2nd stage: sovereign debt crisis in Europe

6. II. Big Picture2. Starting locally but global impact • Subprime mortgage crisis in the U.S. had impacts not only financial institutions in the U.S. but also in Europe. • European sovereign debt crisis saw bankruptcy of MF Global Holdings in the U.S.

7. II. Big Picture2. Starting Locally but global impactAs for real economy, more impact on export reliant countries than the U.S. or Europe.Export (% change from preceding period) Source: United Nations

8. II. Big Picture2. Starting Locally but global impact Distress of European banks could lead to pulling out of their money from developing countriesBank Claims On Developing Countries Source: BIS , International Bank Claims (24 countries)

9. II. Big Picture3. Confidence in Government at Stake • Rescue plan for Greece was agreed; however, there remains uncertainty regarding its implementation • Italy was placed under IMF surveillance

10. III. Lessons from the Financial Crisis • Macro economic role for deposit insurance system • Deposit insurance system without government money • International cooperation and coordination

11. III. Lessons from the Financial Crisis1. Macro economic role for deposit insurance system Protection of Depositors (microeconomic role) + Stability of the financial system (macroeconomic role)

12. III. Lessons from the Financial Crisis1. Macro economic role for deposit insurance system • Strengthening of deposit insurance system • Division of labor and cooperation among safety-net players • Japan’s experience

13. III. Lessons from the Financial Crisis2. Deposit insurance system without government money Shaky confidence in government could mean no public money for bank resolutions in time of crisis. • Reinforcement of deposit insurance fund => Ex-ante collection of premiums => Targeting fund level => Premium rates • Living will => No Too Big To Fail financial institutions • Japan’s experience

14. III. Lessons from the Financial Crisis3. International Cooperation and Coordination • Cross-border cooperation is necessary to deal with globalized financial system • Coordination and harmonization of deposit insurance system is essential to prevent cherry-picking • Japan’s experience

15. IV. Conclusion • Greater role is expected for the deposit insurer as one of the safety-net players • IADI has much to do to promote cooperation and harmonization of the deposit insurance system globally.