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4.1 CO-INSURANCE

Co-insurance is a form of explicit deposit protection arrangement, this technique is very effective and protects against moral hazard problem. Co-insurance encourages the depositors to place their money in very healthy banks. This expectation did not work in the Northern Rock scenario. If this system worked, then the depositors should have been cautious in depositing their money. A statement from Northern Rock show it attracted a good amount of retail deposit from the United Kingdom after the credit squeeze, about 2 billion of liquidity was raised in 6 months time (HM treasury, Fifth report). the bank kept receiving significant money from the retail deposits until the crisis, This show that the depositors couldn't sense the funding problems of the bank. This experience shows it is unrealistic to have expectation on the depositors to judge the risks of the bank. Recent financial instruments the banks are using are very complex for a ordinary depositors to understand. Financial innovations in recent time has made it very difficult for the consumers to realise the banks risks and strategies.

This model has also proved to be very risky during bank crisis, because a part depositors who are not fully protected will certainly run on the banks. Only a full guarantee can stop people from running on the bank. As discussed above the co- insurance is very complex for the depositors to understand.

This crisis has shown that the co-insurance arrangement with a limited cover will be very risky and difficult in reality. However this system was removed after the crisis. This system is very straight forward, depositors are protected up to 35000 and nothing after that, this system will gain consumer understanding.

4.2 COVERAGE LIMIT

The countries which adopt explicit deposit insurance system have a limit on their insurance protection. The level of protection varies across different countries, this differs across nations due to economic condition and financial strengths .Coverage limit is a important element本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。