Does deposit insurance decrease bank risk effectively?----Evidence from the American Banking Industry
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| Title | Does deposit insurance decrease bank risk effectively?----Evidence from the American Banking Industry
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| Author | Guo Ye and Zhao Jing |
| Organization | Xiamen University |
| Email | eyguo@xmu.edu.cn；lydiazhaojing@163.com |
| Key Words | Explicit deposit insurance; Effect during Financial Crisis; Bank Risk; Corporate Governance；Bank Leverage |
| Abstract | Does explicit deposit insurance decrease bank risk effectively? Whether deposit insurance can decrease bank risk as expected especially during the financial crisis? Based on a recent literature survey together with banking evidence from 2004-2009 in American’s 2775 banks, this paper explores the effect of deposit insurance on banks’ risk taking with the method of Logistic model and systemic GMM for dynamic panel data. We examine the relation between deposit insurance and bank risk in the non-crisis period and during the recent financial crisis. In addition, we find that bank leverage and ownership structure have an important effect on their relationship. The empirical result shows that explicit deposit insurance doesn’t have a significant effect on bank risk in pre-crisis years while bank risk is lower in banks with deposit insurance coverage during the financial crisis. Moreover, non-members’ risk will increase the probability of other bank failure. Thirdly, high leverage will offset some of the good effect of deposit insurance. Finally, lower ownership concentration has a good consequence on reducing the possibility of moral hazard of deposit insurance. |
| Serial Number | WP960 |
| Time | 2015-11-13 |
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