The most salient point however is that Kenya's bank resolution policy is not only incoherent but may be pursued in a way that fails to question the supervisory capability of the central bank and how that raises risks of bank failures
that could be avoided.What remains is an inefficient mechanism that harms depositors failed through inadequate supervision and an incoherent bank resolution policy.
This is good news, especially for large depositors and creditors who suffer during bank failures
. Under liquidation, once a bank is put under receivership, KDIC pays a guaranteed sum of up to Sh100,000 to depositors.
The subsequent panic amongst Chase Bank clients to withdraw their money before a bank failure
led to a liquidity crunch and a swift move by the Central Bank of Kenya (CBK) to put the bank under receivership.
And finally, even a 20 percent capital requirement (much higher than proposed by prominent reformers) would not have prevented bank failures
during the Great Recession; the losses at the 400 government-insured banks that failed between 2008 and 2011 averaged 24.8 percent of assets.
Many observers are looking to the regulatory aftermath of the savings and loan crisis of the late 1980s for clues as to how bank failures
will ultimately be resolved.
Cyprus was--unfortunately, to my mind--interpreted as the beginning of an unexpected regime change in how bank failures
are dealt with in Europe.
The New Zealand Government has looked hard at deposit insurance schemes and concluded that they blunt the incentives for investors and banks to properly manage risks, and may even increase the chance of bank failure
Two closures occurred in Illinois, which has also experienced many bank failures
. There have been three failures in Illinois in 2012 to-date, and 49 since the current cycle began, pulling the state in third place for failures.
The increase in bank failures
that began in 2008 was largely precipitated by the collapse of the U.S.
In April, the FDIC closed 13 banks after three bank failures
But Wilson and Fox found examples of undercut bank failures
that had occurred in low-flow streams.