Strengthening Deposit Insurance in Mongolia
Project Development Objective (PDO)
This project aims to improve the role and institutional capacity of Deposit Insurance Corporation of Mongolia (DICOM) thereby strengthening the financial safety net in Mongolia and improving financial stability.
Background
The Bank Deposit Insurance Law was adopted by the Mongolian Parliament on January 10, 2013, and laid down the legal basis for the establishment of the Deposit Insurance Corporation of Mongolia (DICOM) with the mandate to protect depositors’ interests and ensure financial stability. DICOM is a nonprofit, state owned corporation that acts as an independent agency of the Government to implement the deposit insurance scheme. At DICOM management’s request, the WBG team conducted an assessment of DICOM on its compliance with Core Principles for Effective Deposit Insurance Systems of the International Association of Deposit Insurers (IADI). This project will help DICOM take corrective actions so as to improve DICOM’s compliance with the IADI Core Principles and thereby strengthen the financial safety net and overall financial stability in Mongolia.
Activities / Output
This technical assistance project includes the following activities:
1. Advising the DICOM and Bank of Mongolia (BOM) on information sharing and collaboration arrangements and governance structure;
i. Provide advice on cooperation and information sharing arrangements between DICOM and BOM (to ensure that DICOM has access to all information needed to assess the condition of its member banks and the deposit insurance coverage level and that DICOM is given adequate notice on bank resolutions and planning for such resolutions);
ii. Provide advice on the structure of DICOM’s governance to enhance operational independence
2. Supporting the DICOM to develop information sharing and communication protocols related to payout processes and funding of bank resolutions as well as the need for adequate communication with market participants.
3. Supporting the DICOM to determine its funding needs and target fund ratio;
i. Review of current reserve targeting framework and identify the weaknesses;
ii. Improve or replace the model and calculate the target level (adequate level of insurance reserves for DICOM), including training to DICOM on the model
iii. Formulate recommendations on policy choices stemming from the target ratio (e.g. change in contributions etc.).
4. Providing advice on a funding arrangement among BoM, DICOM and MOF as well as on a repurchase agreement between BOM and DICOM
5. Assisting in drafting amendments to the Bank Deposit Insurance Law (2103) and/or other relevant legislation to reflect the suggested improvements as needed, such as on information sharing and responsibilities and legal protection for DICOM’s employees, and to be sure DICOM can recover its expenses as a priority claim in liquidation.
Expected Outcomes
The overall outcomes are an improved DICOM law and other deposit insurance related legislation; more effective information sharing between DICOM and BoM; and enhanced capacity to conduct contingency planning and analysis on DICOM’s funding needs.