Building Capacity of the Deposit Guarantee Fund in Ukraine

Project Development Objective (PDO)

This project aims to strengthen the operations of Ukraine’s Deposit Guarantee Fund. Strengthening the guarantee fund will, in turn, help to maintain public confidence in the banking sector and will minimize costs and market disruption through the following: (a) increased capabilities to manage the target-funding ratio; (b) increased capabilities to valuate, market, and sell distressed assets; and (c) clarification or removal of legal constraints that relate to bank resolution.


The financial crisis has struck hard in Ukraine, exposing vulnerabilities in the country’s banking sector, as well as deficiencies in its resolution process and the financial sector’s safety net. Liquidation was the only tool available to resolve problem banks during the first wave of the financial crisis in 2008–2010. 

Because of the banking sector’s extensive losses, the government of Ukraine has resolved to transform the country’s Deposit Guarantee Fund (DGF) from a simple pay-box deposit insurer into a deposit insurance system with a bank-resolution mandate. The objective of reforming the DGF is to reduce the overall cost of bank failures by promoting early intervention, maximizing value of recovered bank assets, and restoring market confidence.

Since the enactment of the Law on Deposit Insurance System in 2012, those working for the DGF—with the help of donors and partners—have drafted and adopted a series of regulations and have completed a strategic plan for 2013–2017. Nonetheless, Ukraine’s banking system is still likely to see more bank failures during the next 18 months. In this context, the DGF’s role as a bank-resolution agency and liquidator, as well as its objective to minimize the cost of bank failures to taxpayers, will be more important than ever. 


The project team is providing a model to calculate the target-funding ratio as it relates to the payout function of the DGF. The team is also (a) assessing the existing methodology for projecting funding needs as they relate to the payout function, (b) developing revisions and improvements to the model, and (c) providing guidance tools for using the model to establish a target-funding ratio. 

Furthermore, the team is developing guidance on techniques for valuing and marketing distressed assets specifically for bank-resolution and liquidation departments. This guidance will include appraisal techniques, notes on appraisal review, a template for organizing a review by potential bidders, techniques for effectively pooling assets for sale, and a template to collect and track data on distressed assets. In addition, the team is providing local legal consultation to review and draft amendments that will resolve discrepancies between the DGF law and Ukraine’s civil, tax, and criminal codes. Such discrepancies could expose DGF and its staff to liabilities when carrying out bank liquidation and asset sales.

Expected Outcomes

The expected outcomes of this project are as follows:

1.  Increasing capabilities to manage the target-funding ratio 

2.  Increasing capabilities to manage distressed assets, including the effective valuation, marketing,
     and sale of distressed assets 

3.  Clarifying or removing legal constraints that relate to bank resolution