How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis

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collection.link.5
https://openknowledge.worldbank.org/handle/10986/9
collection.name.5
Policy Research Working Papers
dc.contributor.author
Anginer, Deniz
dc.contributor.author
Demirguc-Kunt, Asli
dc.contributor.author
Zhu, Min
dc.date.accessioned
2013-01-28T23:02:12Z
dc.date.available
2013-01-28T23:02:12Z
dc.date.issued
2012-12
dc.description.abstract
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.
en
dc.identifier.uri
http://hdl.handle.net/10986/12186
dc.language
English
dc.language.iso
en_US
dc.publisher
World Bank, Washington, DC
dc.relation.ispartofseries
Policy Research Working Paper; No. 6289
dc.rights
CC BY 3.0 IGO
dc.rights.holder
World Bank
dc.rights.uri
http://creativecommons.org/licenses/by/3.0/igo/
dc.subject
ACCOUNTING
dc.subject
ADOPTION OF DEPOSIT INSURANCE
dc.subject
ASSET VALUE
dc.subject
ASSET VALUES
dc.subject
ASSETS RATIO
dc.subject
AUSTRIAN NATIONAL BANK
dc.subject
BALANCE SHEET
dc.subject
BANK ASSETS
dc.subject
BANK COMPETITION
dc.subject
BANK DEFAULT
dc.subject
BANK DEPOSITORS
dc.subject
BANK DIRECTORS
dc.subject
BANK EQUITY
dc.subject
BANK FRAGILITY
dc.subject
BANK INTERMEDIATION
dc.subject
BANK LENDING
dc.subject
BANK PERFORMANCE
dc.subject
BANK POLICY
dc.subject
BANK REGULATION
dc.subject
BANK RESTRUCTURING
dc.subject
BANK RISK
dc.subject
BANK RISK TAKING
dc.subject
BANK RISK-TAKING
dc.subject
BANK STABILITY
dc.subject
BANK SUPERVISION
dc.subject
BANK SYSTEM
dc.subject
BANKING ASSETS
dc.subject
BANKING CRISES
dc.subject
BANKING CRISIS
dc.subject
BANKING LAW
dc.subject
BANKING SECTOR
dc.subject
BANKING SECTOR STABILITY
dc.subject
BANKING SECTORS
dc.subject
BANKING SYSTEM
dc.subject
BANKING SYSTEM STABILITY
dc.subject
BANKRUPTCY
dc.subject
BANKS
dc.subject
BEHAVIOR OF BANKS
dc.subject
BENEFITS OF DEPOSIT INSURANCE
dc.subject
CALL OPTION
dc.subject
CAPITALIZATION
dc.subject
CDS
dc.subject
COMMERCIAL BANKS
dc.subject
CONSEQUENCES OF DEPOSIT INSURANCE
dc.subject
CONTAGIOUS BANK
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CONTAGIOUS BANK RUNS
dc.subject
CORPORATE DEBT
dc.subject
CORRECTIVE ACTIONS
dc.subject
COSTS OF DEPOSIT INSURANCE
dc.subject
COUNTRIES WITH DEPOSIT INSURANCE
dc.subject
COUNTRIES WITHOUT DEPOSIT INSURANCE
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CREDIT RISK
dc.subject
CREDIT UNION
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CREDIT UNIONS
dc.subject
DEBT
dc.subject
DEFAULT PROBABILITIES
dc.subject
DEFAULT PROBABILITY
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DEFAULT RISK
dc.subject
DEFAULTS
dc.subject
DEPOSIT
dc.subject
DEPOSIT INSURANCE
dc.subject
DEPOSIT INSURANCE AFFECT
dc.subject
DEPOSIT INSURANCE AFFECTS
dc.subject
DEPOSIT INSURANCE COVERAGE
dc.subject
DEPOSIT INSURANCE DUMMY
dc.subject
DEPOSIT INSURANCE INCREASE
dc.subject
DEPOSIT INSURANCE INCREASES
dc.subject
DEPOSIT INSURANCE PREMIUMS
dc.subject
DEPOSIT INSURANCE SCHEME
dc.subject
DEPOSIT INSURANCE SCHEMES
dc.subject
DEPOSIT INSURANCE VARIABLE
dc.subject
DEPOSIT MONEY BANKS
dc.subject
DEPOSIT-INSURANCE
dc.subject
DEPOSIT-INSURANCE DESIGN
dc.subject
DEPOSITOR
dc.subject
DEPOSITOR CONFIDENCE
dc.subject
DEPOSITORS
dc.subject
DEPOSITS
dc.subject
DEVELOPING COUNTRIES
dc.subject
DIVIDEND
dc.subject
DIVIDEND RATE
dc.subject
DIVIDENDS
dc.subject
DUMMY VARIABLE
dc.subject
ECONOMIC CONDITIONS
dc.subject
ECONOMIC DEVELOPMENT
dc.subject
ECONOMIC DOWNTURNS
dc.subject
ECONOMIC STABILITY
dc.subject
EFFECT OF DEPOSIT INSURANCE
dc.subject
EFFECTIVENESS OF DEPOSIT INSURANCE
dc.subject
EFFECTS OF DEPOSIT INSURANCE
dc.subject
EFFECTS ON BANK
dc.subject
EQUITY PREMIUM
dc.subject
EQUITY RETURNS
dc.subject
EQUITY VALUE
dc.subject
EQUITY VOLATILITY
dc.subject
EUROPEAN CENTRAL BANK
dc.subject
EXCESSIVE RISK
dc.subject
EXCESSIVE RISK TAKING
dc.subject
EXPLICIT DEPOSIT
dc.subject
EXPLICIT DEPOSIT INSURANCE
dc.subject
EXTERNAL AUDITORS
dc.subject
FACE VALUE
dc.subject
FEATURES OF DEPOSIT INSURANCE
dc.subject
FINANCIAL CRISIS
dc.subject
FINANCIAL DEVELOPMENT
dc.subject
FINANCIAL INSTABILITY
dc.subject
FINANCIAL INSTITUTIONS
dc.subject
FINANCIAL INTERMEDIATION
dc.subject
FINANCIAL SAFETY NETS
dc.subject
FINANCIAL STABILITY
dc.subject
FINANCIAL STRUCTURE
dc.subject
FINANCIAL STUDIES
dc.subject
FINANCIAL SYSTEM
dc.subject
FINANCIAL SYSTEMS
dc.subject
FRAUD
dc.subject
FULL DEPOSIT INSURANCE
dc.subject
FULL INSURANCE COVERAGE
dc.subject
GLOBAL STOCK MARKET
dc.subject
GOVERNMENT INTERVENTIONS
dc.subject
GROWTH RATE
dc.subject
IMPACT OF DEPOSIT INSURANCE
dc.subject
IMPLICIT GUARANTEE
dc.subject
IMPLIED VOLATILITY
dc.subject
INCENTIVE OF DEPOSITORS
dc.subject
INSTITUTIONAL ENVIRONMENT
dc.subject
INSTITUTIONAL ENVIRONMENTS
dc.subject
INSURANCE DEPOSIT
dc.subject
INSURANCE DESIGN
dc.subject
INTEREST INCOME
dc.subject
INTEREST RATES
dc.subject
INTERNATIONAL BANK
dc.subject
INTERNATIONAL BANKS
dc.subject
INTERNATIONAL FINANCIAL SYSTEM
dc.subject
INTERNATIONAL TRADE
dc.subject
INTERPOLATION
dc.subject
INVESTMENT OPPORTUNITIES
dc.subject
INVESTOR CONFIDENCE
dc.subject
LACK OF MARKET DISCIPLINE
dc.subject
LEVEL OF RISK
dc.subject
LEVERAGE
dc.subject
LEVERAGE RATIO
dc.subject
LEVERAGE RATIOS
dc.subject
LIQUIDITY
dc.subject
LOAN
dc.subject
LOAN LOSS PROVISIONS
dc.subject
MARKET CAP
dc.subject
MARKET DISCIPLINE
dc.subject
MARKET EQUITY
dc.subject
MARKET INFORMATION
dc.subject
MARKET PRICES
dc.subject
MARKET VALUE
dc.subject
MONETARY FUND
dc.subject
MORAL HAZARD
dc.subject
MORAL HAZARD EFFECT
dc.subject
MORAL HAZARD EFFECTS
dc.subject
MORAL HAZARD PROBLEM
dc.subject
MORAL HAZARD PROBLEMS
dc.subject
NEGATIVE SHOCK
dc.subject
OPTIMAL DEPOSIT INSURANCE
dc.subject
OWNERSHIP RIGHTS
dc.subject
PARTICULAR COUNTRY
dc.subject
PORTFOLIO
dc.subject
PORTFOLIO OF BANKS
dc.subject
PRESENCE OF DEPOSIT INSURANCE
dc.subject
PRIVATE BANKS
dc.subject
PRIVATE CREDIT
dc.subject
PRIVATE CREDITS
dc.subject
PRIVATE SECTOR DEVELOPMENT
dc.subject
PROBABILITY OF DEFAULT
dc.subject
PROBLEM BANK
dc.subject
PROFITABILITY
dc.subject
PUBLIC POLICY
dc.subject
RECAPITALIZATIONS
dc.subject
REORGANIZATION
dc.subject
RESERVE
dc.subject
RETURN ON ASSETS
dc.subject
RISK ASSESSMENT
dc.subject
RISK SHIFTING
dc.subject
RISK TAKING
dc.subject
SAFETY NET
dc.subject
SHAREHOLDER
dc.subject
SHAREHOLDERS
dc.subject
STOCK MARKET
dc.subject
STOCK MARKET CAPITALIZATION
dc.subject
STOCK PRICE
dc.subject
STOCK RETURN
dc.subject
STOCK RETURNS
dc.subject
SUPERVISORY AGENCY
dc.subject
SUPERVISORY AUTHORITIES
dc.subject
SUPERVISORY AUTHORITY
dc.subject
SYSTEMIC CRISIS
dc.subject
SYSTEMIC RISK
dc.subject
T-BILL
dc.subject
T-BILL RATE
dc.subject
TREASURY
dc.subject
TREASURY YIELD
dc.subject
TRUST COMPANIES
dc.subject
UNSOPHISTICATED DEPOSITORS
dc.subject
VALUE OF ASSETS
dc.subject
VALUE OF BANK ASSETS
dc.subject
WEAK BANK
dc.title
How Does Deposit Insurance Affect Bank Risk? Evidence from the Recent Crisis
en
okr.date.disclosure
2012-12-01
okr.doctype
Publications & Research :: Policy Research Working Paper
okr.doctype
Publications & Research
okr.docurl
http://documents.worldbank.org/curated/en/2012/12/17061254/deposit-insurance-affect-bank-risk-evidence-recent-crisis
okr.globalpractice
Finance and Markets
okr.globalpractice
Trade and Competitiveness
okr.googlescholar.linkpresent
yes
okr.identifier.doi
10.1596/1813-9450-6289
okr.identifier.externaldocumentum
000158349_20121211132238
okr.identifier.internaldocumentum
17061254
okr.identifier.report
WPS6289
okr.language.supported
en
okr.pdfurl
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/12/11/000158349_20121211132238/Rendered/PDF/wps6289.pdf
en
okr.relation.associatedurl
https://openknowledge.worldbank.org/handle/10986/16210
okr.sector
Finance :: General finance sector
okr.topic
Finance and Financial Sector Development :: Deposit Insurance
okr.topic
Banks and Banking Reform
okr.topic
Finance and Financial Sector Development :: Debt Markets
okr.topic
Private Sector Development :: Emerging Markets
okr.topic
Finance and Financial Sector Development :: Bankruptcy and Resolution of Financial Distress
okr.volume
1 of 1

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