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

113 Pages Posted: 26 Dec 2018 Last revised: 17 Jul 2020

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: February 12, 2020

Abstract

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 use a novel econometric method to explore the causal chain from the expansion of deposit insurance generosity to increased overall lending, increased lending to households, increased banking system leverage, and more severe and frequent banking crises. Greater deposit insurance generosity robustly produces greater overall lending relative to bank assets and more lending to households relative to both bank assets and GDP, and results in higher banking system leverage. Our estimates, however, are not conclusive regarding whether greater deposit insurance generosity resulted in greater total loans relative to GDP or in more frequent or severe banking crises.

Keywords: deposit insurance, mortgage lending, banking crises, moral hazard

JEL Classification: G01, G18, G21, G28, F55, F65, E32

Suggested Citation

Calomiris, Charles W. and Chen, Sophia, The Spread of Deposit Insurance and the Global Rise in Bank Asset Risk Since the 1970s (February 12, 2020). Available at SSRN: https://ssrn.com/abstract=3297294 or http://dx.doi.org/10.2139/ssrn.3297294

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

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National Bureau of Economic Research (NBER)

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Sophia Chen

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

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Washington, DC 20431
United States

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