How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis
By D. Anginer, Asli Demirgüç-Kunt, Min Zhu. 2012
395 citations recorded by the source corpus.
Deposit insurance is widely offered in a number of countries as part of a financial system safety net to promote stability. An unintended consequence of deposit insurance is the reduction in the incentive of depositors to monitor banks which lead to excessive risk-taking. We examine the relation between deposit insurance and bank risk and systemic fragility in the years leading up to and during the recent financial crisis. We find that generous financial safety nets increase bank risk and systemic fragility in the years leading up to the global financial crisis. However, during the crisis, bank risk is lower and systemic stability is greater in countries with deposit insurance coverage. Our findings suggest that the “moral hazard effect” of deposit insurance dominates in good times while the “stabilization effect” of deposit insurance dominates in turbulent times. The overall effect of deposit insurance over the full sample we study remains negative since the destabilizing effect during normal times is greater in magnitude compared to the stabilizing effect during global turbulence. In addition, we find that good bank supervision can alleviate the unintended consequences of deposit insurance on bank systemic risk during good times, suggesting that fostering the appropriate incentive framework is very important for ensuring systemic stability.
Subfields: Accounting, Finance
View Paper: https://www.semanticscholar.org/paper/1e3439132357fbb45f953b8233c0c770eb9bf099
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Accounting
In Finance
Citations in the corpus
- National culture and bank risk-taking (2017, positive): “We follow Ahern et al. (2015), Anginer et al. (2014), Fiordelisi et al. (2011), La Porta et al. (1997) and Li et al. (2013) in choosing the relevant country variables (e.g., GDP per capita, GDP growth volatility, Domestic credit as a percentage of GDP, Legal origin).”
- Bank Regulation, the Quality of Institutions, and Banking Risk in Emerging and Developing Countries: An Empirical Analysis (2014, background): “21 Anginer et al. (2013) examine the relation between deposit insurance and banking risk in the years leading up to and during the recent financial crisis.”
- Political Institutions and Bank Risk-Taking Behavior (2015, neutral): “…focused on banking industry regulations such as capital requirements, activity restrictions and explicit deposit insurance (Laeven & Levine 2009; Anginer et al. 2014; Haq et al. 2014), banking industry structure (Boyd & De Nicolo 2005; Martinez-Miera & Repullo 2010), macroeconomic indicators…”