Deposit Insurance and External Finance

11 Pages Posted: 5 Jun 2006

See all articles by Stephen G. Cecchetti

Stephen G. Cecchetti

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

Stefan Krause

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

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In this article we examine one potential explanation for the cross-country differences in the importance of banks and capital market financing of investment. 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. (JEL G21, G22, G32)

Suggested Citation

Cecchetti, Stephen G. and Cecchetti, Stephen G. and Krause, Stefan, Deposit Insurance and External Finance. Economic Inquiry, Vol. 43, Issue 3, pp. 531-541, 2005, Available at SSRN:

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