The IADI-Africa Region Annual Conference The Benefits of Deposit Insurance in Africa Design Features of Effective Deposit Insurance System Kevin Chew Senior Manager, MDIC Tanzania, 24 July 2010

Four Common Essential Elements of Effective Deposit Insurance Systems Clear Mandate (and Objectives) IndependenceTransparencyAccountability 2

Clear and Precise Mandate (1) Overlaps in roles and responsibilities. Without clarity: – Unproductive overlaps/duplication of roles/working at cross purposes (undermines confidence) With clear differentiation: – Financial system as a whole is stable – Policy decisions can be made quickly 3

Clear and Precise Mandate (2) Rules for cooperation provided for by laws Malaysia – enables MDIC and BNM to enter into a SAA The SAA:  Formalises coordination of actions and information sharing  Forms basis for clear division of labour and areas for coordination Becomes important if DIs have powers to intervene and resolve troubled banks. 4

Two Aspects of Operational Independence Policy decisions Pre-condition for successful implementation of policy decisions and actions. Particularly important for DIs with powers to resolve banks. Financial Autonomy Adequate financial resources to perform functions effectively Ensure that policy objectives of a DI would not be compromised Free hand in setting and implementing budget 5

MDIC’s Governance Structure Fosters Independence 6 Board members selected from both public and private sectors Directors be explicitly non-political and not an officer of an MI Board required to have high standards of independence and integrity Criteria that would justify disqualification/termination of Board members

Benefits of Being Operationally Independent More credible in eyes of general public Seen as good practice Minimises likelihood of regulatory forbearance Minimises likelihood of regulatory capture Gives policy decisions greater legitimacy Can undertake financial stability functions quickly that allow for more rapid and effective response to crisis situation 7

MDIC Governance Features that Promotes Accountability 8 Separation of Board, CEO and Management Strategic Planning – Operationalise Management’s Accountability to Board Board Governance Policy – 15 standards that deals with Board’s roles and responsibilities Strong and independent internal audit function Enterprise risk management function Checks and balances on CEO by Board MDIC required to have annual financial statements verified by independent external auditor and submitted to Parliament Separation of Board, CEO and Management Strategic Planning – Operationalise Management’s Accountability to Board Board Governance Policy – 15 standards that deals with Board’s roles and responsibilities Strong and independent internal audit function Enterprise risk management function Checks and balances on CEO by Board MDIC required to have annual financial statements verified by independent external auditor and submitted to Parliament

Transparency (1) Refers to process of informing the public on how the organisation is being governed and managed, what it planned to achieve, and whether goals were achieved. Enable interested parties to assess performance and determine whether we achieved our core objective. 9

Transparency (2) Promotes public confidence Helps policymakers manage and formulate well-founded expectations - influence public confidence positively. Good governance demands that DI enjoying operational independence be transparent 10

MDIC - Channels of Reporting Carry out public consultations before issuing policy guidelines and regulations. Conduct road shows, briefings and yearly outreach programmes throughout the country. Disclose in annual report -- audited financial statements, governance matters and how we managed our risks, performance of MDIC against its stated objects and corporate initiatives and compliance with 15 Board Governance Policy Standards 11

Conclusion 4 common elements - clear mandate. independence, transparency and accountability At MDIC, these elements underpin MDIC progress in gaining public confidence. Official endorsement of its ability and effectiveness, MDIC mandate extended to cover insurance industry. 12

Thank You 13