As the example of the US thrift crisis showed, the design of deposit insurance deserves special attention. The second appendix of the core principles contains a balanced view on this delicate issue, which can be summarised as follows: On the one hand, deposit insurance is desirable because it limits the effect that problems at one bank might have on other banks.
This obviously increases the stability of the financial system. However, deposit insurance can also increase the risk of imprudent behaviour by banks, because depositors will be less inclined to withdraw funds even if the bank pursues high-risk strategies. Therefore, governments should incorporate mechanisms in the system of depositor protection that prevent excessive risk-taking by banks.