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The Political Economy of Deposit Insurance

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF)

March 17, 2004

World Bank Policy Research Working Paper No. 3247

Laeven uses a political economy framework to analyze cross-country differences in deposit insurance coverage. He finds supporting evidence of the significance of private interest theories in explaining coverage of deposit insurance. Deposit insurance coverage is significantly higher in countries where poorly capitalized banks dominate the market and in countries where depositors are poorly educated. The author does not find that coverage is significantly related to political-institutional variables, such as the degree of democracy or restraints on the executive, or to proxies for the general level of institutional development, such as per capita income or property rights. These results provide evidence in support of the private interest view, according to which risky banks lobby for extensive coverage.

This paper - a product of the Financial Sector Operations and Policy Department - is part of a larger effort in the department to study deposit insurance systems.

Number of Pages in PDF File: 43

JEL Classification: Deposit Insurance, Political Economy

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Date posted: October 26, 2004  

Suggested Citation

Laeven, Luc, The Political Economy of Deposit Insurance (March 17, 2004). World Bank Policy Research Working Paper No. 3247. Available at SSRN: http://ssrn.com/abstract=610288

Contact Information

Luc A. Laeven (Contact Author)
European Central Bank (ECB) ( email )
Sonnemannstrasse 22
Frankfurt am Main, 60314
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
202-6239020 (Phone)
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