Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation

37 Pages Posted: 20 Apr 2016

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Date Written: November 1999

Abstract

Explicit deposit insurance tends to be detrimental to bank stability - the more so where bank interest rates are deregulated and the institutional environment is weak.

Based on evidence for 61 countries in 1980-97, Demirguc-Kunt and Detragiache find that explicit deposit insurance tends to be detrimental to bank stability, the more so where bank interest rates are deregulated and the institutional environment is weak.

The adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors, and where the scheme is funded and run by the government rather than the private sector.

This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to study deposit insurance. The study was funded by the Bank's Research Support Budget under the research project Deposit Insurance: Issues of Principle, Design, and Implementation (RPO 682-90). The authors may be contacted at ademirguckunt@worldbank.org or edetragiache@imf.org.

Suggested Citation

Demirgüç-Kunt, Asli and Detragiache, Enrica, Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation (November 1999). Available at SSRN: https://ssrn.com/abstract=629183

Asli Demirgüç-Kunt (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Enrica Detragiache

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

700 19th Street NW
Washington, DC 20431
United States

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