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Blessing or curse? Government funding of deposit insurance and corporate lending

Manthos Delis (), Maria Iosifidi and Panagiotis Papadopoulos

MPRA Paper from University Library of Munich, Germany

Abstract: A key policy to limit the possibility of bank runs is an explicit deposit insurance scheme, which can be either privately or government funded. Using syndicated loans from 63 countries during the period 1985–2016, we study the effect of government involvement in deposit insurance funding on price and non-price characteristics of loans. We show that changes from purely private-funded to either government-funded or jointly funded deposit insurance increase all-in-spread-drawn by approximately 4.6%, further increase loan fees, decrease loan maturity, and increase the use of performance pricing provisions. Our findings are consistent with the moral hazard problem behind government-funded deposit insurance schemes.

Keywords: Deposit insurance; Government or private funding; Lending terms; Syndicated loans (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2020-03-18
New Economics Papers: this item is included in nep-ban and nep-ias
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