Does Deposit Insurance Increase Banking System Stability?

Are the Consequences Different?

Author: Asli Demirgüç-Kunt and Ms. Enrica Detragiache

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.

Volume/Issue: Volume 2000 Issue 003

Publication date: January 2000

ISBN: 9781451841893

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Topics covered in this book

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Business and Economics , Banks and Banking , Finance , WP , bank deposit , insurance scheme , insurance system , insurance dummy , G28 , G21 , E44 , deposit insurance , design feature , design variable , deposit insurance variable , deposit insurance design , insurance design , Deposit insurance , Banking crises , Bank deposits , Moral hazard , Bank soundness , Africa , Global

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Summary

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.