Deposit Insurance Adoption and Bank Risk-Taking: the Role of Leverage

Mathias Lé

Debats Economiques et financiers from Banque de France

Abstract: Explicit deposit insurance is a crucial ingredient of modern financial safety nets. This paper investigates the effect of deposit insurance adoption on individual bank leverage. Using a panel of banks across 117 countries during the period 1986-2011, I show that deposit insurance adoption pushes banks to increase significantly their leverage by reducing their capital buffer. This increase in bank leverage then translates into higher probability of insolvency. Most importantly, I bring evidence that deposit insurance adoption has important competitive effects: I show that large, systemic and highly leveraged banks are unresponsive to deposit insurance adoption.

Keywords: Deposit Insurance; Bank Risk-Taking; Leverage; Systemic Bank; Capital Buffer. (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 G32 (search for similar items in EconPapers)
Pages: 86 pages
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cba and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Deposit Insurance Adoption and Bank Risk-Taking: the Role of Leverage (2013)
Working Paper: Deposit Insurance Adoption and Bank Risk-Taking: the Role of Leverage (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:decfin:9

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