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

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

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