Does deposit insurance retard the development of non-bank financial markets?
Mikael C. Bergbrant,
Kaysia T. Campbell,
Delroy M. Hunter and
James E. Owers
Journal of Banking & Finance, 2016, vol. 66, issue C, 102-125
Whether, and how, the introduction of deposit insurance affects non-bank financial market development depends on whether banks and non-bank financial markets are substitutes or complements and theory has conflicting views. Using data on 134 countries over a 28-year period and several identification strategies we find that the introduction of deposit insurance retards the equity market, the non-bank depositaries sector, and the banking sector when law and order is weak. While strong law and order mitigates this effect, it does not lead to a positive outcome for all markets. For non-bank financial markets, the effect is greater in the long run so that while deposit insurance increases banking sector development in the long run, it retards non-bank financial markets regardless of the level of law and order. Finally, several design features exacerbate the negative outcomes. Our results have important policy implications for implementing or altering deposit insurance schemes.
Keywords: Deposit insurance; Financial market development; Non-bank financial markets; Risk-shifting (search for similar items in EconPapers)
JEL-codes: F3 G2 O1 (search for similar items in EconPapers)
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:66:y:2016:i:c:p:102-125
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().