Deposit Insurance, Moral Hazard and Bank Risk

30 Pages Posted: 28 Jan 2021

See all articles by Alexei Karas

Alexei Karas

Utrecht University, University College Roosevelt; Utrecht University School of Economics; Centre for Russian International Socio-Political and Economic Studies (CERISE)

William Pyle

Middlebury College - Department of Economics

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics

Date Written: 2021

Abstract

Using evidence from Russia, we explore the effect of the introduction of deposit insurance on bank risk. Drawing on variation in the ratio of firm deposits to total household and firm deposits before the announcement of deposit insurance, so as to capture the magnitude of the decrease in market discipline after the introduction of deposit insurance, we demonstrate that larger declines in market discipline generate larger increases in traditional measures of risk. These results hold in a difference-in-difference setting in which private domestic banks serve as the treatment group and state and foreign-owned banks, whose deposit insurance regime does not change, serve as a control group.

JEL Classification: G650, G210, G280, P340

Suggested Citation

Karas, Alexei and Pyle, William and Schoors, Koen J. L., Deposit Insurance, Moral Hazard and Bank Risk (2021). CESifo Working Paper No. 8867, Available at SSRN: https://ssrn.com/abstract=3774675

Alexei Karas (Contact Author)

Utrecht University, University College Roosevelt ( email )

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William Pyle

Middlebury College - Department of Economics ( email )

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Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

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Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 265 35 99 (Fax)

Ghent University - Department of General Economics ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 264 35 99 (Fax)

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