Deposit Insurance, Moral Hazard and Bank Risk

Alexei Karas, William Pyle and Koen Schoors

No 8867, CESifo Working Paper Series from CESifo

Abstract: Using evidence from Russia, we explore the effect of the introduction of deposit insurance on bank risk. Drawing on variation in the ratio of firm deposits to total household and firm deposits before the announcement of deposit insurance, so as to capture the magnitude of the decrease in market discipline after the introduction of deposit insurance, we demonstrate that larger declines in market discipline generate larger increases in traditional measures of risk. These results hold in a difference-in-difference setting in which private domestic banks serve as the treatment group and state and foreign-owned banks, whose deposit insurance regime does not change, serve as a control group.

Keywords: deposit insurance; market discipline; moral hazard; risk taking; banks; Russia (search for similar items in EconPapers)
JEL-codes: G21 G28 P34 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cis and nep-ias
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8867

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