Determinants of Deposit-Insurance Adoption and Design

Abstract

This paper investigates the factors that determine a country's decision to adopt explicit deposit insurance using data on 170 countries over the 1960-2003 period. Specifically, we focus on the role played by outside influences and internal political factors both in adopting deposit insurance and crafting its design. Our results indicate that the desire to emulate developed-country regulatory brameworks, and having a more-democratic political system make adoption and generous design more likely, even after we control for a large number of country characteristics and events, such as macroeconomic shocks, occurrence and severity of crises, and institutional development.

Keywords: Deposit Insurance, Bank Regulation, Political Economy, Institutions

JEL Classification: G21, G28, P51