Deposit insurance is a protection provided by government or a private agency to depositors against risk of loss arising from failure of a bank.. In the modern sense, deposit insurance for the first time emerged in the United States following the Great Depression of 1929 and spread in many different ways. In our country deposit insurance had started to be implemented in 1933 and it has maintained its presence in various ways to the present day. From the perspective of the banking and financial system, the deposit insurance system incorporates several advantages and disadvantages. Functions of the deposit insurance system is quite effective on competition in financial markets. In the study, in different countries practices of deposit insurance system is examined and the system's impact on competition in the banking sector are discussed.