Does Deposit Insurance Retard the Development of Financial Markets?

54 Pages Posted: 19 Mar 2012 Last revised: 10 Jun 2014

See all articles by Mikael C. Bergbrant

Mikael C. Bergbrant

St. Johns University

Kaysia Campbell

East Carolina University - Department of Finance

Delroy M. Hunter

University of South Florida

James E. Owers

Georgia State University - Department of Finance

Date Written: June 9, 2014

Abstract

Using a panel of 87 countries, we find that the introduction of deposit insurance retards the development of nonbank financial markets, the banking sector, and, hence, the overall financial market. This effect is less severe in the short run and can be mitigated by strong law and order, but is generally not positive even with the strongest law and order. Further, design features that benefit depositors influence the negative effect on nonbank markets. Our results suggest that externalities arising from deposit insurance make concerns about its effects more pressing than those arising solely from the evidence for the banking sector.

Keywords: deposit insurance; financial market development; nonbank financial markets; risk-shifting

JEL Classification: F3; G2; O1

Suggested Citation

Bergbrant, Mikael C. and Campbell, Kaysia and Hunter, Delroy M. and Owers, James Edwin, Does Deposit Insurance Retard the Development of Financial Markets? (June 9, 2014). Available at SSRN: https://ssrn.com/abstract=2024420 or http://dx.doi.org/10.2139/ssrn.2024420

Mikael C. Bergbrant

St. Johns University ( email )

8000 Utopia Parkway
Queens, NY 11439
United States
8134476288 (Phone)

HOME PAGE: http://www.bergbrant.com

Kaysia Campbell

East Carolina University - Department of Finance ( email )

United States

Delroy M. Hunter (Contact Author)

University of South Florida ( email )

Dept of Finance, Muma College of Business
4202 E. Fowler Ave, BSN3403
Tampa, FL 33620
United States
(813) 843-2085 (Phone)
(813) 974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/hunter-delroy.aspx

James Edwin Owers

Georgia State University - Department of Finance ( email )

University Plaza
Atlanta, GA 30303-3083
United States
404-651-2628 (Phone)
404-651-2630 (Fax)

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