Deposit Insurance and External Finance

28 Pages Posted: 7 Dec 2004

See all articles by Stephen G. Cecchetti

Stephen G. Cecchetti

Brandeis International Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Stefan Krause

Banque de France - Economic Study and Research Division; Sciences Po

Multiple version iconThere are 2 versions of this paper

Date Written: November 2004

Abstract

Countries around the world differ substantially in the relative importance of their banks and capital markets in providing investment financing. This paper examines one potential explanation for the cross-country differences in the importance of banks and capital market financing of investment. It is our contention that much of the variation across countries in the depth and breadth of capital markets can be explained by a combination of the existence of deposit insurance and the extent to which a country's banking system is state owned. We provide both an equilibrium model predicting and empirical evidence showing that countries with explicit deposit insurance and a high degree of state-owned bank assets have smaller equity markets, a lower number of publicly traded firms and a smaller amount of bank credit to the private sector. Finally, our results suggest that the effects of deposit guarantees are more important than the origins of national legal systems.

Suggested Citation

Cecchetti, Stephen G. and Krause, Stefan, Deposit Insurance and External Finance (November 2004). NBER Working Paper No. w10908. Available at SSRN: https://ssrn.com/abstract=622622

Stephen G. Cecchetti (Contact Author)

Brandeis International Business School ( email )

415 South Street
Waltham, MA 02453
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
212-720-8629 (Phone)
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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Stefan Krause

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

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