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Remarks by

Jelena McWilliams
Chairman
Federal Deposit Insurance Corporation

“A Call to Action: Why We Need Effective Deposit Insurance Systems”
at the
2018 IADI Annual Conference and 17th Annual General Meeting

Basel, Switzerland

October 18, 2018

Good afternoon. I am delighted to have the opportunity to speak with you today
and I want to thank IADI’s Chairman, Governor Mikuniya, for inviting me. I also
want to thank David Walker, IADI Secretary General, and his staff for organizing
this event and for their gracious hospitality.
This is my first opportunity to address you as FDIC Chairman and I am honored
because I have tremendous respect for how much IADI has done in a relatively
short period of time to strengthen deposit insurance systems around the world.
The FDIC is proud to be a founding member of, and strong contributor to, this
association.
Personal Story
I want this audience in particular to know that deposit insurance is especially
important to me for very personal reasons. I was born and raised in the former
Yugoslavia, a communist country with very little financial infrastructure and no
deposit insurance.
My parents did not have much money, but what little savings they had were
deposited in a local bank. When Yugoslavia’s economy was collapsing in the
early 1990s and the bank became troubled, my parents lined up along with other
depositors, holding a brown paper bag. But there was no money left for them.
When that bank closed its doors, my family lost their life’s savings, and my 68year old father became a day laborer making five dollars a day. I know first-hand
the hardship that can result from inadequate protection for ordinary depositors.
The mission of the FDIC resonates profoundly with me, and I am committed to
strong and effective deposit insurance arrangements.
Importance of Effective Deposit Insurance Systems
Now that you know this is a personal mission of mine, I want to say a few words
about achieving compliance with IADI’s core principles in all jurisdictions around
the world. We must all make this a top priority and treat it as a matter of urgency,
not as a luxury item that we can pursue when convenient. On a personal level, I
would not want another 68-year-old to have to dig trenches because his life savings
were deposited at a bank without deposit insurance.
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And yet effective deposit insurance systems are not fully in place around the
world. Instead, there is a patchwork of deposit insurance systems in various
degrees of compliance.
There is general recognition internationally among the world’s financial standard
setters that effective deposit insurance arrangements are paramount for financial
stability.
The evidence from the most recent financial crisis only reinforces this
understanding. The jurisdictions that had well-established and effectively
functioning deposit insurance systems entering the crisis fared much better than
those without.
Moreover, it is in our individual jurisdictional interests to achieve compliance with
the core principles as quickly as possible.
Our own experience in the U.S. is instructive on this. During the depths of the
most recent crisis, FDIC insurance allowed us to manage some 500 bank failures
without disruption.1
The Role of IADI
One of the top priorities in the current strategic plan of IADI is to assist members
in achieving compliance with the core principles. To that end, IADI has begun to
train more experts to assist with its Self-Assessment Technical Assistance
Program, or SATAP, and has created a new group to provide individual follow-up
for members in overcoming their specific obstacles to implementing system
enhancements.
I urge member organizations to take advantage of IADI resources to assist you in
achieving full compliance with the core principles.
We at the FDIC believe this is important enough to devote our own resources to
the cause. The FDIC has been deeply involved in IADI training efforts over the

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The story of the FDIC’s response to the financial crisis is told in our study titled, Crisis and Response: An FDIC
History, 2008-2013. It is available on our website at https://www.fdic.gov.

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years, and we have recently signed on again to lead the newly formed Training and
Conference Technical Committee.
Tony Sinopole and his staff are working hard along with other members of the
technical committee to upgrade the quality and value added of all IADI training
workshops, and to ensure a full supply of core-principles compliance experts to
assist with the needs of IADI members.
Achieving our compliance goals as an association will require strong support from
the IADI secretariat as well. IADI’s strategic plan recognizes this and calls for
providing additional training resources to the secretariat in Phase Two of the plan.
The membership alone cannot provide the continuity, coordination, institutional
memory, and specialized expertise that are required to sustain a quality training
and technical assistance program for deposit insurance.
The secretariat at its current staffing level lacks the capacity to execute these vital
functions, and it will be critical for IADI to provide the secretariat with the
resources needed to achieve and sustain our goals for core principles compliance.
We are at a proverbial fork in the road: we can talk or we can do.
History of Runs
These efforts are necessary not only to shore up each country’s financial safety net,
but to position IADI members to deploy our expertise productively for future
policy discussions.
At the core of almost every systemic financial crisis are runs by holders of liquid
assets. The role of runs is especially evident in the history of financial crises in the
U.S. In the early days of the country, when banks produced their own private
currency called “bank notes,” bank runs occurred when holders of the notes began
to doubt whether their bank was sufficiently sound to be able to redeem all of the
bank notes fully in gold.
The doubts of the noteholders led them to run on their banks and demand repayment in gold while the banks were still able to procure it.

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The creation of a national currency in the U.S. provided by the central government
addressed that problem. With no more private money, the holder of a dollar could
be sure that it was worth a dollar.
But shortly after a national currency was created, a new source of bank runs
emerged. When checking accounts were developed, runs and financial crises
occurred whenever depositors began to doubt that the value of the banks’ assets
backing their accounts would be sufficient to return the full dollar amount of their
deposits.
The establishment of effective deposit insurance systems addressed that problem.
And this has been demonstrated wherever there are deposit insurance arrangements
in compliance with IADI’s core principles.
The most serious runs in the last crisis occurred when institutional investors and
other financial institutions began to doubt the value of the collateral securing their
holdings of repo, commercial paper, and other liquid instruments that were
essentially serving as money for these investors.
The runs were different in form from traditional runs because they occurred
outside the regulated banking sector, involving different actors, but they were not
different in substance.
Holders of highly liquid instruments serving essentially as money became
concerned about the value of the backing, or underlying collateral, and so
precipitated a run in an effort to be repaid before it was too late.
The result was a systemic financial crisis.
The history lesson here is that we can expect new sources of runs to emerge over
time. We have expertise that is relevant for future policy development with other
standard setters in this area, but we need to be in a strong position collectively in
order to contribute. That means our deposit insurance systems must be in good
working order, and this is where IADI’s core principles come into play.
Transparency

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Finally, I want to say a word about something I consider to be an essential
complement to a fully compliant deposit insurance system, and that is
transparency.
Deposit insurance is all about trust. The essence of an effective deposit insurance
system is the trust of the banking public in the operations of the deposit insurer.
The only way to build trust is to make those operations transparent so that your
stakeholders have the information and the means to hold you accountable. It is all
about being accessible, understandable, and responsive to both regulated entities
and those we seek to protect vis-à-vis deposit insurance.
If you do not trust the system in which you live, you do not feel a part of it. It is
not your government. On the other hand, distrust breaks down relationships,
whether it is between a business entity and its customers, a manager and her
employees, or a government and its citizens.
For us in the U.S., it is no accident that trust and public confidence lay at the heart
of the FDIC’s mission statement. Without trust, the FDIC could not maintain
stability and confidence as insurer of deposits, bank supervisor, and receiver of
failed institutions.
Trust in the FDIC as insurer has kept insured deposits from fleeing banks at the
first sign of trouble, including during the crisis. For banks, trust allows for
participation in a supervisory and examination process believed to be fair and free
of outside influence. And as the receiver of failed institutions, trust is necessary to
encourage participation in fair asset sales that return maximum value to the private
sector as quickly as possible.
During times of economic or financial stress, transparency becomes even more
important as the FDIC undertakes stronger and more visible actions. The stronger
the action, the greater the need to be as transparent as possible, not only with
respect to what action is being undertaken, but who will benefit, who will pay for
it, how it will affect banks and consumers, and why it is the best possible course.
Communications that are absent, misunderstood, or nonresponsive, will only serve
to heighten misperceptions that undermine trust and the recovery process.
Because of that, I have chosen for my first initiative at the FDIC to focus on
transparency. The name of the initiative is “Trust through Transparency.”
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A key feature of the initiative is the creation of FDIC performance metrics that will
be published on a new website. Quantifiable measurements of performance, such
as turnaround times for examinations and applications, will be regularly published,
providing transparency for the banking industry and public on our performance.
In closing, I urge you to consider ways to improve transparency in your own
deposit insurance organizations as you move toward compliance with IADI’s core
principles.
Core-principles compliance and transparency are essential ingredients for building
and maintaining the public trust that is the heart and soul of our common mission
as deposit insurers.
In the end, each of us wants to protect that 68-year-old man who had to return to
work as a day laborer because the bank did not have deposit insurance. We will
succeed only if we are accountable to him, consistent with each other, and aligned
in pursuit of a common goal.
And that common goal will be achieved only if we all turn our words into action.
Thank you.

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