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Deposit Insurance and External Finance

Stephen Cecchetti () and Stefan Krause Montalbert

Economic Inquiry, 2005, vol. 43, issue 3, 531-541

Abstract: In this article we examine one potential explanation for the cross-country differences in the importance of banks and capital market financing of investment. We provide both an equilibrium model predicting and empirical evidence showing that countries with explicit deposit insurance and a high degree of state-owned bank assets have smaller equity markets, a lower number of publicly traded firms, and a smaller amount of bank credit to the private sector. Finally, our results suggest that the effects of deposit guarantees are more important than the origins of national legal systems. (JEL G21, G22, G32) Copyright 2005, Oxford University Press.

JEL-codes: G21 G22 G32 (search for similar items in EconPapers)
Date: 2005
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