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Heterogeneous Adjustments in Bank Leverage after Deposit Insurance Adoption

Mathias Lé ()

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Abstract: This paper empirically investigates the bank leverage adjustments after deposit insurance adoption. Banks are found to increase significantly their leverage after the introduction of deposit insurance. However, the banks' responses appear to be heterogenous. The magnitude of the change in bank leverage decreases with (i) the size, (ii) the systemicity and (iii) the initial capitalisation of banks so that the most systemic and the most highly leveraged banks are unresponsive to deposit insurance. As a result, implementing a deposit insurance scheme could have important competitive effects.

Keywords: Deposit Insurance; Bank Risk-Taking; Leverage; Systemic Bank; Capital Buffer; Market Discipline; Too Big to Fail (search for similar items in EconPapers)
Date: 2014-10-16
New Economics Papers: this item is included in nep-ban, nep-cba and nep-ias
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