Explicit deposit insurance, active risk taking, and bank efficiency in China

Ning Ding, Lei Xu, Xiao Wu and Zixuan Dai

International Review of Financial Analysis, 2025, vol. 102, issue C

Abstract: China, the largest bank-based economy, has raised concerns that its explicit deposit insurance system (DIS) may substantially increase risky assets. We examine the impact of DIS on bank efficiency from the perspective of active risk-taking. Through panel data from 107 Chinese banks from 2009 to 2020, we find explicit DIS decreases bank efficiency by boosting active risk-taking, and such a link exhibits a U-shaped pattern. Furthermore, credit risk management capabilities, capital adequacy levels, and bank franchise values can act as crucial mitigating factors, which in turn alleviate the negative effects of DIS on bank efficiency.

Keywords: Explicit deposit insurance system; Active risk-taking; Bank efficiency (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:102:y:2025:i:c:s1057521925002261

DOI: 10.1016/j.irfa.2025.104139

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