Deposit insurance systems in developing countries may fail small depositors.
Deposit insurance systems in developing countries aim to protect small depositors from bank failures and prevent contagious bank runs. These systems offer advantages over ad hoc protection schemes by providing more security for depositors and a smoother process for handling failing banks. However, they also create moral hazard for depositors and can be costly to maintain. Inadequate funding of these systems can lead to credibility issues and difficulties in closing insolvent banks.