The Spread of Deposit Insurance and the Global Rise in Bank Asset Risk Since the 1970s
58 Pages Posted: 26 Dec 2018 Last revised: 9 Jan 2019
Date Written: December 6, 2018
We construct a new measure of deposit insurance generosity for many countries, empirically model the exogenous international influences on the adoption and generosity of deposit insurance and show the causal chain from the expansion of deposit insurance generosity to increased overall lending and mortgage loans, increased banking system leverage, and more severe and frequent banking crises. Greater deposit insurance generosity produces greater lending and a greater proportion of mortgage loans, and higher banking system leverage. Instrumented increases in overall lending and mortgage loans also produce greater likelihood, duration, and severity of banking crises.
Keywords: deposit insurance, mortgage lending, banking crises, moral hazard
JEL Classification: G01, G18, G21, G28, F55, F65, E32
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