Bank Deposit Insurance, Moral Hazard and Market Discipline: Evidence from Central and Eastern Europe

39 Pages Posted: 4 May 2011 Last revised: 19 Jul 2011

See all articles by Tchudjane Kouassi

Tchudjane Kouassi

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Isabelle Distinguin

Université de Limoges, LAPE

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: June 2011

Abstract

There is a considerable debate on the role played by deposit insurance on market discipline in the banking industry. Using data for 203 banks across 10 Central and Eastern European countries, this paper empirically analyzes the implications of the implementation of explicit deposit insurance schemes for bank risk taking and market discipline. We show that the introduction of explicit deposit insurance in the 90’s has lead to higher risk-taking incentives. However, we also show that explicit deposit insurance has strengthened market discipline. Moreover, we find that bank ownership (foreign vs. domestic), institutional and legal factors, and resolution strategies adopted when the country has experienced banking crises impact bank risk and the effectiveness of market discipline.

Keywords: bank risk taking, deposit insurance, market discipline, transition economics

JEL Classification: G21, G28

Suggested Citation

Kouassi, Tchudjane and Distinguin, Isabelle and Tarazi, Amine, Bank Deposit Insurance, Moral Hazard and Market Discipline: Evidence from Central and Eastern Europe (June 2011). Available at SSRN: https://ssrn.com/abstract=1830265 or http://dx.doi.org/10.2139/ssrn.1830265

Tchudjane Kouassi (Contact Author)

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

Isabelle Distinguin

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
273
Abstract Views
1,334
rank
128,659
PlumX Metrics