The trends of the Georgian banking system’s development and the necessity of the deposit insurance system

G. kontridze

The banking sector is a very important link of financial mediation between borrowers and investors.
At the same time, the banking sector is a business having an especially high extent of risk. Commercial banks’ structure of credit portfolios makes them very susceptible to the issues related to liquidity, paying capacity and fluctuations of conjuncture in both the whole of the economy and its separate sectors. The trends and peculiarities of the banking system’s development in the recent years are shown in the article. Corresponding conclusions are drawn, both positive sides of the banking system’s development and the existing imperfections are characterized. Special attention is paid to a most important source of the banking system’s resources, analysis of the deposits’ market and revelation of the development trends, particularly taking into account the fact that the issue of deposits, especially the population’s ones, exceeds the bounds of “narrow bank” interests and should be rather considered in the social-economic aspect. Provisional measures aimed at prevention of bank panic, and the system of deposit insurance is the most important among them, are related to less expenses than the ones taken for liquidation of the results of a system bank crisis, when the financial load passed on to the country’s financial system increases sharply, since the means accumulated in the funds become insufficient for saving the banking system. Deposit insurance reduces the risk of viable banks’ bankruptcy because of groundless rumors. Protection of the so-called “uninformed” depositors, i.e. the population, represents one of the most important arguments for creation of the guaranteeing system. That is why it is important to point out that solving of the issues related to depositors’ insurance should be considered as an integral part of macroeconomic reforms that, which will give a new impulse for the banking system’s further development and serve as a powerful lever of social guarantees.