A Critical Comment on the Planned Deposit InsuranceReform in Belarus

The transformation of private savers’ funds into business loans – the very essential function ofbanking intermediation - is weak in Belarus compared to other Eastern European economies.High concentration, governmental interference, an inconsistent regulation and a difficultbusiness environment characterise the overall situation of the Belarusian banking sector. Inorder to improve the capability of the banking system to attract private savings a reform of thedeposit insurance system is presently under discussion. This is expected to contribute toeconomic growth and development. Given the weak institutional environment, depositinsurance might however bear the risk of unfolding multifarious moral hazard effects. Thispaper analyses whether the proposed deposit insurance system is likely to improve the presentsituation and how it could be better adjusted to the country’s situation.