How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis
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 leads...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2012/12/17061254/deposit-insurance-affect-bank-risk-evidence-recent-crisis http://hdl.handle.net/10986/12186 |
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okr-10986-12186 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
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English en_US |
| topic |
ACCOUNTING ADOPTION OF DEPOSIT INSURANCE ASSET VALUE ASSET VALUES ASSETS RATIO AUSTRIAN NATIONAL BANK BALANCE SHEET BANK ASSETS BANK COMPETITION BANK DEFAULT BANK DEPOSITORS BANK DIRECTORS BANK EQUITY BANK FRAGILITY BANK INTERMEDIATION BANK LENDING BANK PERFORMANCE BANK POLICY BANK REGULATION BANK RESTRUCTURING BANK RISK BANK RISK TAKING BANK RISK-TAKING BANK STABILITY BANK SUPERVISION BANK SYSTEM BANKING ASSETS BANKING CRISES BANKING CRISIS BANKING LAW BANKING SECTOR BANKING SECTOR STABILITY BANKING SECTORS BANKING SYSTEM BANKING SYSTEM STABILITY BANKRUPTCY BANKS BEHAVIOR OF BANKS BENEFITS OF DEPOSIT INSURANCE CALL OPTION CAPITALIZATION CDS COMMERCIAL BANKS CONSEQUENCES OF DEPOSIT INSURANCE CONTAGIOUS BANK CONTAGIOUS BANK RUNS CORPORATE DEBT CORRECTIVE ACTIONS COSTS OF DEPOSIT INSURANCE COUNTRIES WITH DEPOSIT INSURANCE COUNTRIES WITHOUT DEPOSIT INSURANCE CREDIT RISK CREDIT UNION CREDIT UNIONS DEBT DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE AFFECT DEPOSIT INSURANCE AFFECTS DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE DUMMY DEPOSIT INSURANCE INCREASE DEPOSIT INSURANCE INCREASES DEPOSIT INSURANCE PREMIUMS DEPOSIT INSURANCE SCHEME DEPOSIT INSURANCE SCHEMES DEPOSIT INSURANCE VARIABLE DEPOSIT MONEY BANKS DEPOSIT-INSURANCE DEPOSIT-INSURANCE DESIGN DEPOSITOR DEPOSITOR CONFIDENCE DEPOSITORS DEPOSITS DEVELOPING COUNTRIES DIVIDEND DIVIDEND RATE DIVIDENDS DUMMY VARIABLE ECONOMIC CONDITIONS ECONOMIC DEVELOPMENT ECONOMIC DOWNTURNS ECONOMIC STABILITY EFFECT OF DEPOSIT INSURANCE EFFECTIVENESS OF DEPOSIT INSURANCE EFFECTS OF DEPOSIT INSURANCE EFFECTS ON BANK EQUITY PREMIUM EQUITY RETURNS EQUITY VALUE EQUITY VOLATILITY EUROPEAN CENTRAL BANK EXCESSIVE RISK EXCESSIVE RISK TAKING EXPLICIT DEPOSIT EXPLICIT DEPOSIT INSURANCE EXTERNAL AUDITORS FACE VALUE FEATURES OF DEPOSIT INSURANCE FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FRAUD FULL DEPOSIT INSURANCE FULL INSURANCE COVERAGE GLOBAL STOCK MARKET GOVERNMENT INTERVENTIONS GROWTH RATE IMPACT OF DEPOSIT INSURANCE IMPLICIT GUARANTEE IMPLIED VOLATILITY INCENTIVE OF DEPOSITORS INSTITUTIONAL ENVIRONMENT INSTITUTIONAL ENVIRONMENTS INSURANCE DEPOSIT INSURANCE DESIGN INTEREST INCOME INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANKS INTERNATIONAL FINANCIAL SYSTEM INTERNATIONAL TRADE INTERPOLATION INVESTMENT OPPORTUNITIES INVESTOR CONFIDENCE LACK OF MARKET DISCIPLINE LEVEL OF RISK LEVERAGE LEVERAGE RATIO LEVERAGE RATIOS LIQUIDITY LOAN LOAN LOSS PROVISIONS MARKET CAP MARKET DISCIPLINE MARKET EQUITY MARKET INFORMATION MARKET PRICES MARKET VALUE MONETARY FUND MORAL HAZARD MORAL HAZARD EFFECT MORAL HAZARD EFFECTS MORAL HAZARD PROBLEM MORAL HAZARD PROBLEMS NEGATIVE SHOCK OPTIMAL DEPOSIT INSURANCE OWNERSHIP RIGHTS PARTICULAR COUNTRY PORTFOLIO PORTFOLIO OF BANKS PRESENCE OF DEPOSIT INSURANCE PRIVATE BANKS PRIVATE CREDIT PRIVATE CREDITS PRIVATE SECTOR DEVELOPMENT PROBABILITY OF DEFAULT PROBLEM BANK PROFITABILITY PUBLIC POLICY RECAPITALIZATIONS REORGANIZATION RESERVE RETURN ON ASSETS RISK ASSESSMENT RISK SHIFTING RISK TAKING SAFETY NET SHAREHOLDER SHAREHOLDERS STOCK MARKET STOCK MARKET CAPITALIZATION STOCK PRICE STOCK RETURN STOCK RETURNS SUPERVISORY AGENCY SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY SYSTEMIC CRISIS SYSTEMIC RISK T-BILL T-BILL RATE TREASURY TREASURY YIELD TRUST COMPANIES UNSOPHISTICATED DEPOSITORS VALUE OF ASSETS VALUE OF BANK ASSETS WEAK BANK |
| spellingShingle |
ACCOUNTING ADOPTION OF DEPOSIT INSURANCE ASSET VALUE ASSET VALUES ASSETS RATIO AUSTRIAN NATIONAL BANK BALANCE SHEET BANK ASSETS BANK COMPETITION BANK DEFAULT BANK DEPOSITORS BANK DIRECTORS BANK EQUITY BANK FRAGILITY BANK INTERMEDIATION BANK LENDING BANK PERFORMANCE BANK POLICY BANK REGULATION BANK RESTRUCTURING BANK RISK BANK RISK TAKING BANK RISK-TAKING BANK STABILITY BANK SUPERVISION BANK SYSTEM BANKING ASSETS BANKING CRISES BANKING CRISIS BANKING LAW BANKING SECTOR BANKING SECTOR STABILITY BANKING SECTORS BANKING SYSTEM BANKING SYSTEM STABILITY BANKRUPTCY BANKS BEHAVIOR OF BANKS BENEFITS OF DEPOSIT INSURANCE CALL OPTION CAPITALIZATION CDS COMMERCIAL BANKS CONSEQUENCES OF DEPOSIT INSURANCE CONTAGIOUS BANK CONTAGIOUS BANK RUNS CORPORATE DEBT CORRECTIVE ACTIONS COSTS OF DEPOSIT INSURANCE COUNTRIES WITH DEPOSIT INSURANCE COUNTRIES WITHOUT DEPOSIT INSURANCE CREDIT RISK CREDIT UNION CREDIT UNIONS DEBT DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE AFFECT DEPOSIT INSURANCE AFFECTS DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE DUMMY DEPOSIT INSURANCE INCREASE DEPOSIT INSURANCE INCREASES DEPOSIT INSURANCE PREMIUMS DEPOSIT INSURANCE SCHEME DEPOSIT INSURANCE SCHEMES DEPOSIT INSURANCE VARIABLE DEPOSIT MONEY BANKS DEPOSIT-INSURANCE DEPOSIT-INSURANCE DESIGN DEPOSITOR DEPOSITOR CONFIDENCE DEPOSITORS DEPOSITS DEVELOPING COUNTRIES DIVIDEND DIVIDEND RATE DIVIDENDS DUMMY VARIABLE ECONOMIC CONDITIONS ECONOMIC DEVELOPMENT ECONOMIC DOWNTURNS ECONOMIC STABILITY EFFECT OF DEPOSIT INSURANCE EFFECTIVENESS OF DEPOSIT INSURANCE EFFECTS OF DEPOSIT INSURANCE EFFECTS ON BANK EQUITY PREMIUM EQUITY RETURNS EQUITY VALUE EQUITY VOLATILITY EUROPEAN CENTRAL BANK EXCESSIVE RISK EXCESSIVE RISK TAKING EXPLICIT DEPOSIT EXPLICIT DEPOSIT INSURANCE EXTERNAL AUDITORS FACE VALUE FEATURES OF DEPOSIT INSURANCE FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FRAUD FULL DEPOSIT INSURANCE FULL INSURANCE COVERAGE GLOBAL STOCK MARKET GOVERNMENT INTERVENTIONS GROWTH RATE IMPACT OF DEPOSIT INSURANCE IMPLICIT GUARANTEE IMPLIED VOLATILITY INCENTIVE OF DEPOSITORS INSTITUTIONAL ENVIRONMENT INSTITUTIONAL ENVIRONMENTS INSURANCE DEPOSIT INSURANCE DESIGN INTEREST INCOME INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANKS INTERNATIONAL FINANCIAL SYSTEM INTERNATIONAL TRADE INTERPOLATION INVESTMENT OPPORTUNITIES INVESTOR CONFIDENCE LACK OF MARKET DISCIPLINE LEVEL OF RISK LEVERAGE LEVERAGE RATIO LEVERAGE RATIOS LIQUIDITY LOAN LOAN LOSS PROVISIONS MARKET CAP MARKET DISCIPLINE MARKET EQUITY MARKET INFORMATION MARKET PRICES MARKET VALUE MONETARY FUND MORAL HAZARD MORAL HAZARD EFFECT MORAL HAZARD EFFECTS MORAL HAZARD PROBLEM MORAL HAZARD PROBLEMS NEGATIVE SHOCK OPTIMAL DEPOSIT INSURANCE OWNERSHIP RIGHTS PARTICULAR COUNTRY PORTFOLIO PORTFOLIO OF BANKS PRESENCE OF DEPOSIT INSURANCE PRIVATE BANKS PRIVATE CREDIT PRIVATE CREDITS PRIVATE SECTOR DEVELOPMENT PROBABILITY OF DEFAULT PROBLEM BANK PROFITABILITY PUBLIC POLICY RECAPITALIZATIONS REORGANIZATION RESERVE RETURN ON ASSETS RISK ASSESSMENT RISK SHIFTING RISK TAKING SAFETY NET SHAREHOLDER SHAREHOLDERS STOCK MARKET STOCK MARKET CAPITALIZATION STOCK PRICE STOCK RETURN STOCK RETURNS SUPERVISORY AGENCY SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY SYSTEMIC CRISIS SYSTEMIC RISK T-BILL T-BILL RATE TREASURY TREASURY YIELD TRUST COMPANIES UNSOPHISTICATED DEPOSITORS VALUE OF ASSETS VALUE OF BANK ASSETS WEAK BANK Anginer, Deniz Demirguc-Kunt, Asli Zhu, Min How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis |
| relation |
Policy Research Working Paper; No. 6289 |
| description |
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 leads to excessive risk-taking. This
paper examines the relation between deposit insurance and
bank risk and systemic fragility in the years leading to and
during the recent financial crisis. It finds 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. The 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. Nevertheless, the overall effect of deposit insurance
over the full sample remains negative since the
destabilizing effect during normal times is greater in
magnitude compared with the stabilizing effect during global
turbulence. In addition, the analysis finds 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. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Anginer, Deniz Demirguc-Kunt, Asli Zhu, Min |
| author_facet |
Anginer, Deniz Demirguc-Kunt, Asli Zhu, Min |
| author_sort |
Anginer, Deniz |
| title |
How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis |
| title_short |
How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis |
| title_full |
How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis |
| title_fullStr |
How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis |
| title_full_unstemmed |
How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis |
| title_sort |
how does deposit insurance affect bank risk? evidence from the recent crisis |
| publisher |
World Bank, Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2012/12/17061254/deposit-insurance-affect-bank-risk-evidence-recent-crisis http://hdl.handle.net/10986/12186 |
| _version_ |
1764422098884755456 |
| spelling |
okr-10986-121862021-04-23T14:03:05Z How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis Anginer, Deniz Demirguc-Kunt, Asli Zhu, Min ACCOUNTING ADOPTION OF DEPOSIT INSURANCE ASSET VALUE ASSET VALUES ASSETS RATIO AUSTRIAN NATIONAL BANK BALANCE SHEET BANK ASSETS BANK COMPETITION BANK DEFAULT BANK DEPOSITORS BANK DIRECTORS BANK EQUITY BANK FRAGILITY BANK INTERMEDIATION BANK LENDING BANK PERFORMANCE BANK POLICY BANK REGULATION BANK RESTRUCTURING BANK RISK BANK RISK TAKING BANK RISK-TAKING BANK STABILITY BANK SUPERVISION BANK SYSTEM BANKING ASSETS BANKING CRISES BANKING CRISIS BANKING LAW BANKING SECTOR BANKING SECTOR STABILITY BANKING SECTORS BANKING SYSTEM BANKING SYSTEM STABILITY BANKRUPTCY BANKS BEHAVIOR OF BANKS BENEFITS OF DEPOSIT INSURANCE CALL OPTION CAPITALIZATION CDS COMMERCIAL BANKS CONSEQUENCES OF DEPOSIT INSURANCE CONTAGIOUS BANK CONTAGIOUS BANK RUNS CORPORATE DEBT CORRECTIVE ACTIONS COSTS OF DEPOSIT INSURANCE COUNTRIES WITH DEPOSIT INSURANCE COUNTRIES WITHOUT DEPOSIT INSURANCE CREDIT RISK CREDIT UNION CREDIT UNIONS DEBT DEFAULT PROBABILITIES DEFAULT PROBABILITY DEFAULT RISK DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE AFFECT DEPOSIT INSURANCE AFFECTS DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE DUMMY DEPOSIT INSURANCE INCREASE DEPOSIT INSURANCE INCREASES DEPOSIT INSURANCE PREMIUMS DEPOSIT INSURANCE SCHEME DEPOSIT INSURANCE SCHEMES DEPOSIT INSURANCE VARIABLE DEPOSIT MONEY BANKS DEPOSIT-INSURANCE DEPOSIT-INSURANCE DESIGN DEPOSITOR DEPOSITOR CONFIDENCE DEPOSITORS DEPOSITS DEVELOPING COUNTRIES DIVIDEND DIVIDEND RATE DIVIDENDS DUMMY VARIABLE ECONOMIC CONDITIONS ECONOMIC DEVELOPMENT ECONOMIC DOWNTURNS ECONOMIC STABILITY EFFECT OF DEPOSIT INSURANCE EFFECTIVENESS OF DEPOSIT INSURANCE EFFECTS OF DEPOSIT INSURANCE EFFECTS ON BANK EQUITY PREMIUM EQUITY RETURNS EQUITY VALUE EQUITY VOLATILITY EUROPEAN CENTRAL BANK EXCESSIVE RISK EXCESSIVE RISK TAKING EXPLICIT DEPOSIT EXPLICIT DEPOSIT INSURANCE EXTERNAL AUDITORS FACE VALUE FEATURES OF DEPOSIT INSURANCE FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SAFETY NETS FINANCIAL STABILITY FINANCIAL STRUCTURE FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FRAUD FULL DEPOSIT INSURANCE FULL INSURANCE COVERAGE GLOBAL STOCK MARKET GOVERNMENT INTERVENTIONS GROWTH RATE IMPACT OF DEPOSIT INSURANCE IMPLICIT GUARANTEE IMPLIED VOLATILITY INCENTIVE OF DEPOSITORS INSTITUTIONAL ENVIRONMENT INSTITUTIONAL ENVIRONMENTS INSURANCE DEPOSIT INSURANCE DESIGN INTEREST INCOME INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANKS INTERNATIONAL FINANCIAL SYSTEM INTERNATIONAL TRADE INTERPOLATION INVESTMENT OPPORTUNITIES INVESTOR CONFIDENCE LACK OF MARKET DISCIPLINE LEVEL OF RISK LEVERAGE LEVERAGE RATIO LEVERAGE RATIOS LIQUIDITY LOAN LOAN LOSS PROVISIONS MARKET CAP MARKET DISCIPLINE MARKET EQUITY MARKET INFORMATION MARKET PRICES MARKET VALUE MONETARY FUND MORAL HAZARD MORAL HAZARD EFFECT MORAL HAZARD EFFECTS MORAL HAZARD PROBLEM MORAL HAZARD PROBLEMS NEGATIVE SHOCK OPTIMAL DEPOSIT INSURANCE OWNERSHIP RIGHTS PARTICULAR COUNTRY PORTFOLIO PORTFOLIO OF BANKS PRESENCE OF DEPOSIT INSURANCE PRIVATE BANKS PRIVATE CREDIT PRIVATE CREDITS PRIVATE SECTOR DEVELOPMENT PROBABILITY OF DEFAULT PROBLEM BANK PROFITABILITY PUBLIC POLICY RECAPITALIZATIONS REORGANIZATION RESERVE RETURN ON ASSETS RISK ASSESSMENT RISK SHIFTING RISK TAKING SAFETY NET SHAREHOLDER SHAREHOLDERS STOCK MARKET STOCK MARKET CAPITALIZATION STOCK PRICE STOCK RETURN STOCK RETURNS SUPERVISORY AGENCY SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY SYSTEMIC CRISIS SYSTEMIC RISK T-BILL T-BILL RATE TREASURY TREASURY YIELD TRUST COMPANIES UNSOPHISTICATED DEPOSITORS VALUE OF ASSETS VALUE OF BANK ASSETS WEAK BANK 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 leads to excessive risk-taking. This paper examines the relation between deposit insurance and bank risk and systemic fragility in the years leading to and during the recent financial crisis. It finds 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. The 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. Nevertheless, the overall effect of deposit insurance over the full sample remains negative since the destabilizing effect during normal times is greater in magnitude compared with the stabilizing effect during global turbulence. In addition, the analysis finds 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. 2013-01-28T23:02:12Z 2013-01-28T23:02:12Z 2012-12 http://documents.worldbank.org/curated/en/2012/12/17061254/deposit-insurance-affect-bank-risk-evidence-recent-crisis http://hdl.handle.net/10986/12186 English en_US Policy Research Working Paper; No. 6289 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |