Determinants of Deposit Insurance Coverage

Yiming Chang, Shangmei Zhao, Haijun Yang, Jiang He and Fei Hu

Prague Economic Papers, 2018, vol. 2018, issue 5, 588-605

Abstract: On a comprehensive duration data set covering 189 countries from 1960 to 2015, we employ a Heckman two-step selection model to investigate determinants of deposit insurance coverage. We find that macroeconomic status, bank structure and regulatory, political institution, legal system and deposit insurance design characteristics have a significant effect on deposit insurance coverage. Moreover, empirical results show that the impact factors are different between developing and developed countries, especially the design characteristics. Specifically, for developing countries, the scheme with the Foreign currency will support a higher coverage. And for developed countries, the Interbank deposits will lead to a lower coverage, but the No coinsurance shows the opposite effect. It is noteworthy that both the Payouts and Backstop from government influence the coverage setting conversely in different samples, which implies that there may be higher banks' risk-taking incentives in developing countries after setting up explicit deposit insurance system.

Keywords: deposit insurance coverage; political economics; private interest theory; public interest theory; Heckman two-step model (search for similar items in EconPapers)
JEL-codes: G21 G22 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.18267/j.pep.676

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