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Deposit Insurance, Market Discipline and Bank Risk

Author

Listed:
  • Alexei Karas
  • William Pyle
  • Koen Schoors
Abstract
Using evidence from Russia, we explore the e ect of the introduction of deposit insurance on bank risk. Drawing on within-bank variation in the ratio of firm deposits to total household and firm deposits, so as to capture the magnitude of the decrease in market discipline after the introduction of deposit insurance, we demonstrate for private, domestic banks that larger declines in market discipline generate larger increases in traditional measures of risk. These results hold in a di erence-in-di erence setting in which state and foreign-owned banks, whose deposit insurance regime does not change, serve as a control..

Suggested Citation

  • Alexei Karas & William Pyle & Koen Schoors, 2019. "Deposit Insurance, Market Discipline and Bank Risk," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/953, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:19/953
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    File URL: http://wps-feb.ugent.be/Papers/wp_19_953.pdf
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    References listed on IDEAS

    as
    1. Lambert, Claudia & Noth, Felix & Schüwer, Ulrich, 2017. "How do insured deposits affect bank risk? Evidence from the 2008 Emergency Economic Stabilization Act," Journal of Financial Intermediation, Elsevier, vol. 29(C), pages 81-102.
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    4. Asli Demirguc-Kunt & Edward J. Kane, 2002. "Deposit Insurance Around the Globe: Where Does It Work?," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 175-195, Spring.
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    6. Park, Sangkyun & Peristiani, Stavros, 1998. "Market Discipline by Thrift Depositors," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 347-364, August.
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    11. A. Karas & K. Schoors, 2005. "Heracles or Sisyphus? Finding, cleaning and reconstructing a database of Russian banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/327, Ghent University, Faculty of Economics and Business Administration.
    12. Alexei Karas & William Pyle & Koen Schoors, 2010. "How do Russian depositors discipline their banks? Evidence of a backward bending deposit supply function," Oxford Economic Papers, Oxford University Press, vol. 62(1), pages 36-61, January.
    13. Ferre Graeve & Alexei Karas, 2014. "Evaluating Theories Of Bank Runs With Heterogeneity Restrictions," Journal of the European Economic Association, European Economic Association, vol. 12(4), pages 969-996, August.
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    1. Christina Atanasova & Mingxin Li & Yevgeny Mugerman & Mehrdad Rastan, 2019. "Government guarantees and the risk-taking of financial institutions: evidence from a regulatory experiment," Journal of Asset Management, Palgrave Macmillan, vol. 20(6), pages 476-492, October.

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    More about this item

    Keywords

    deposit insurance; market discipline; moral hazard; risk taking; banks; Russia;
    All these keywords.

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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