Does Deposit Insurance Increase Banking System Stability?

By Asli Demirgüç-Kunt, E. Detragiache. Social Science Research Network, 2000

302 citations recorded by the source corpus.

This study analyzes panel data for 61 countries during 1980-97 and concludes that explicit deposit insurance tends to be detrimental to bank stability, the more so where bank interest rates are deregulated and the institutional environment is weak. Also, the adverse impact of deposit insurance on bank stability tends to be stronger when the coverage offered to depositors is extensive, when the scheme is funded, and when it is run by the government rather than by the private sector.

Subfields: Finance, Information Systems

View Paper: https://www.semanticscholar.org/paper/c756c190c7e6164371326ced09657677ebe0649b

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Citations in the corpus

Bank capital management: International evidence (2015, unknown): “On the other hand, deposit insurance may reduce the debt overhang problem and/or create banking system instability (Demirgüc-Kunt and Detragiache, 2002), leading to a potentially swifter adjustment towards target.”
Banking crises and exchange rate regimes - Is there a link? (2003, background): “Recently, studies by Eichengreen and Hausmann (1999), Eichengreen and Rose (1998), Hausmann et al.”
Consolidation in banking and financial stability in Europe: Empirical evidence (2008, background): “Second, while previous studies have either focused on real episodes of banking crises (Beck et al., 2006a, 2006b; Demirgüç-Kunt and Detragiache, 2002) or the banks’ capital ratio as a proxy for financial soundness (Schaeck and Čihák, 2007; Schaeck et al.”
Law, endowments, and finance (2003, background): “…finance and industry allocation of capital relationship, Demirguc-Kunt and Maksimovic (1998) on the finance and firm growth link, Demirguc-Kunt and Detragiache (2002) on the finance and crisis relationship, Easterly, Islam, and Stiglitz (2000) on the finance and output volatility links, and…”
Bank Concentration and Fragility. Impact and Mechanics (2005, background): “However, Jayaratne and Strahan (1998) find that deregulation in the 1980s lowered loan losses, and Dick (2006) finds higher loan loss provisions following deregulation in the 1990s.”