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

Mathias Lé ()

Working Papers from HAL

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)
Date: 2013-11
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00911415
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Working Paper: Deposit Insurance Adoption and Bank Risk-Taking: the Role of Leverage (2013) Downloads
Working Paper: Deposit Insurance Adoption and Bank Risk-Taking: the Role of Leverage (2013) Downloads
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