ABSTRACT
Deposit insurance serves mainly to foster confidence and thus to minimize the chances of bank runs. To the extent that this role has been filled by the establishment of an effective lender of last resort, to whom banks caught in temporary liquidity crises can turn, some have argued that there is no need for a deposit insurance scheme. 1 Yet real crises can occur and banks can fail, even with an effective lender of last resort. Deposit insurance minimizes the systematic fallout from such an eventuality.
