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The mediating role of competition on deposit insurance and the risk-taking of banks in ASEAN countries

Abu Hanifa Md. Noman, M. Kabir Hassan, Sajeda Pervin, Che Ruhana Isa and Sok-Gee Chan

Research in International Business and Finance, 2022, vol. 59, issue C

Abstract: We investigate the mediating function of competition on the association between deposit insurance and the risk-taking of banks during an economic meltdown. In our analysis, we address issues of deposit insurance, competition, bank risk-taking, and bank crisis with explicit deposit insurance and full coverage dummies. Deposit insurance reduces bank risk in the absence of competition by reducing both credit and insolvency risk; however, it exacerbates bank risk and weakens banking stability in a highly competitive market. It also shows that the banking instability in a competitive market is attenuated by deposit insurance during financial crisis. This study offers policy implications.

Keywords: Bank risk-taking; Competition; Crisis; Deposit insurance; Regulation (search for similar items in EconPapers)
JEL-codes: G21 G24 G28 G32 G38 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.ribaf.2021.101551

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