Bank Capital, Liquidity Creation and Deposit Insurance

Zuzana Fungáčová, Laurent Weill and Mingming Zhou ()

Journal of Financial Services Research, 2017, vol. 51, issue 1, No 4, 97-123

Abstract: Abstract This paper examines how the introduction of deposit insurance influences the relationship between bank capital and liquidity creation. As discussed by Berger and Bouwman (Rev Financ Stud 22:3779–3837, 2009), there are two competing hypotheses on this relationship which can be influenced by the presence of deposit insurance. The introduction of a deposit insurance scheme in an emerging market, Russia, provides a natural experiment to empirically investigate this issue. We use the difference-in-difference approach on a large dataset of all Russian banks. Our findings suggest that the introduction of the deposit insurance scheme has different effects on the relationship between capital and bank liquidity creation across different types of banks. It is those banks characterized by relatively high household deposit ratios that are most affected by the introduction of deposit insurance program. For these banks, deposit insurance reduces the impact of capital on liquidity creation. These findings have important policy implications as they suggest that deposit insurance and capital requirements should not be considered separately by bank regulators.

Keywords: Bank capital; Liquidity creation; Deposit insurance; Russia (search for similar items in EconPapers)
JEL-codes: G21 G28 G38 P30 P50 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
http://link.springer.com/10.1007/s10693-016-0240-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jfsres:v:51:y:2017:i:1:d:10.1007_s10693-016-0240-7

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10693

DOI: 10.1007/s10693-016-0240-7

Access Statistics for this article

Journal of Financial Services Research is currently edited by Haluk Unal

More articles in Journal of Financial Services Research from Springer, Western Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().