Deposit Insurance, Banks’ Moral Hazard, and Regulation: Evidence from the ASEAN Countries and Korea

Iljoong Kim, Inbae Kim and Yoonseon Han

Emerging Markets Finance and Trade, 2014, vol. 50, issue 6, 56-71

Abstract: In this paper, we analyze the effect of deposit insurance (DI) on banks’ risk-taking for the ASEAN (Association of Southeast Asian Nations) countries and Korea. Previous studies focus primarily on developed countries or use mixed samples. The utilization of a panel data set consisting of 406 banks across our sample countries reveals that banks engage more actively in risk-taking in the presence of DI, that the adverse effect of DI is aggravated with extensive coverage, and that DI-related moral hazard is curbed through better regulatory quality. Particularly, risk-taking is relatively higher in Korea, but no difference is detected in the stabilizing effect of the regulatory quality. Relevant policy implications are offered.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:50:y:2014:i:6:p:56-71

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DOI: 10.1080/1540496X.2014.1013875

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