The Spread of Deposit Insurance and the Global Rise in Bank Asset Risk Since the 1970s

63 Pages Posted: 28 Aug 2018 Last revised: 21 Aug 2021

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Sophia Chen

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: August 2018

Abstract

We construct a new measure of the changing generosity of deposit insurance for many countries, empirically model the international influences on the adoption and generosity of deposit insurance, and show that the expansion of deposit insurance generosity increased asset risk in banking systems. We consider three asset risk measures: higher loans-to-assets, a higher proportion of lending to households, and a higher proportion of mortgage lending. None of the observed increases in these indicators is offset by declines in banking system leverage. We show that increased asset risk explains at least part of the positive association between deposit insurance and the likelihood and severity of systemic banking crises.

Suggested Citation

Calomiris, Charles W. and Chen, Sophia, The Spread of Deposit Insurance and the Global Rise in Bank Asset Risk Since the 1970s (August 2018). NBER Working Paper No. w24936, Available at SSRN: https://ssrn.com/abstract=3239272

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

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Sophia Chen

International Monetary Fund (IMF) - Research Department ( email )

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