Banking Instability and Deposit Insurance: The Role of Moral Hazard

Ngalawa, Harold; Tchana, Fulbert Tchana; Viegi, Nicola

doi:10.1016/s1514-0326(16)30013-7

Cited by 39 publications

(20 citation statements)

References 33 publications

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“…Using a sample of developing and developed countries between 1980 and 1994, one study found that a deposit insurance scheme is negatively correlated with bank stability (Demirgüç-Kunt and Detragiache 2002). Another study that uses cross-country panel data between 1980 and 2004 also finds an effect of a deposit insurance scheme on bank insolvency and bank runs (Ngalawa et al 2016). A similar study also shows that the implementation of a deposit insurance scheme increases the likelihood of bank failure (Hooks and Robinson 2002), loan-deposit rate spread (Carapella and Giorgio 2004), and moral hazard (Yilmaz and Muslumov 2008).…”

Section: Introductionmentioning

confidence: 78%

Does a deposit insurance scheme induce moral hazard among bankers? Evidence from an experiment with bankers

Sahadewo¹,

Purwanto²,

Pradiptyo³

2018

GADJAH MADA INT. J. BUS.

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The implementation of a deposit insurance scheme entails a trade off. On one hand, as shown in theoretical and empirical studies, a deposit insurance scheme reduces the likelihood of a bank run. On the other hand, a deposit insurance scheme induces moral hazard among bankers that may lead to bank failures. We rigorously test the effect of different deposit coverage limit and the implementation of a differential premium treatment on bankers’ behaviors in the deposit and credit market. We do so by designing a laboratory experiment that involves real bankers as participants. We find that the coverage limit treatments do not have any effect on deposit rate offer. Nevertheless, we find that a high deposit coverage limit induces smaller banks to have a higher share of risky projects. This is evidence of moral hazard particularly among small banks.

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Section: Introductionmentioning

confidence: 78%

Does a deposit insurance scheme induce moral hazard among bankers? Evidence from an experiment with bankers

Sahadewo¹,

Purwanto²,

Pradiptyo³

2018

GADJAH MADA INT. J. BUS.

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“…Dummy variable "government ownership" takes the value 1 if the share of state ownership is higher than 50% and the opposite value = 0. It addresses the hypothetical incentives for the shareholders to assume higher risks if the potential governmental support is available (Cheng et al, 2016;Mariathasan et al, 2014;Ngalawa et al, 2016).…”

Section: Methodsmentioning

confidence: 99%

“…They suggest that the governmental guarantees reduce the downside risk associated with financing decisions and thus incentivize the banks to assume risks they would not choose to bear without the expected government support. Duran and Lozano-Vivas (2012), Ngalawa et al (2016) indicate further that generous deposit insurance schemes seem to incentivize risk shifting to the non-depository creditors. By comparing the different forms of the government support, Janda (2011) concludes that in some situations the credit guarantees and interest rate subsidies are beneficial for borrowers and lenders, e.g.…”

Section: Introductionmentioning

confidence: 98%

Micro-level Evidences of Moral Hazard in the European Financial Institutions

Janda

Kravtsov

2017

The Impact of Globalization on International Finance and Accounting

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Abstract:This article examines the evidences of moral hazard in the risk taking behavior of the 500 banks in Central Europe, the Baltics and Balkan region. We test the evidences of moral hazard in empirical relationships between shareholders, bank managers and regulatory restraints. The results generally support the theoretical arguments, though we cannot find explicit evidences of moral hazard in risk taking behavior of the bank managers of the region. Our findings suggest that the capital requirements and regulatory concerns along with performance efficiency exhibit the strongest impact on the level of risk taking.

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“…S druge strane, mnoga istraživanja (npr. Cull et al, 2002;Davis, Obasi, 2009;Lé, 2013;Ngalawa, 2016) dokazala su kako eksplicitni sustavi mogu stvoriti negativne efekte poput nestabilnosti bankovnog sustava i/ili kriza te povećanja moralnog hazarda banaka. Ipak, empirijski dokazi o povezanosti eksplicitnog sustava osiguranja depozita i povećanog preuzimanja rizika su nekonzistentni jer učinak ovisi i o vlasničkoj strukturi sustava osiguranja depozita kao i drugim institucionalnim karakteristikama.…”

Section: Pregled Literatureunclassified

Učinci sustava osiguranja depozita na bankovni rizik

Nikolaj

Draženović

Drezgić

2019

Zb. Veleuč. Rij. (Online)

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SAŽETAKBankovna stabilnost temelji se na povjerenju deponenata u bankovne institucije i cjelokupni bankovni sustav. Jedna od bazičnih mjera koje osiguravaju navedeno je sustav osiguranja depozita kao sastavni dio sigurnosne mreže svakog financijskog sustava. Njegova važnost posebno dolazi do izražaja u uvjetima nestabilnosti i kriza, dok se u tzv. "dobrim vremenima" podcjenjuju brojni pozitivni učinci. Ipak, sustav osiguranja depozita rezultira i negativnim posljedicama u smislu većeg preuzimanja rizika od strane banaka, smanjenja tržišne discipline, problema moralnog hazarda i negativne selekcije te problema principala i agenta. Cilj rada je ispitati učinke sustava osiguranja depozita na bankovnu stabilnost u tri razdoblja: prije globalne financijske krize, za trajanja krize i nakon krize. Bankovna stabilnost aproksimirana je mjerama bankovnog rizika (z-score, nenaplativi krediti u ukupnim kreditima). Istraživanjem su obuhvaćene sve vrste kreditnih institucija (ukupno 1 453) zemalja članica EU-a i odabranih država JI Europe. Analiza je provedena dinamičkom panel analizom -GMM Arellano-Bond (AB) procjeniteljem u dva koraka. Rezultati empirijske analize ukazuju kako djelovanje sustava osiguranja depozita na bankovnu stabilnost mjerenu bankovnim rizikom ovisi o pojedinim obilježjima (karakteristikama) sustava odnosno o primijenjenom dizajnu sustava s obzirom na institucionalne, povijesne i pravne razlike među zemljama. Ključne riječi: sustav osiguranja depozita, bankovna stabilnost, rizik, dinamička panel analiza. Creative Commons Attribution -NonCommercial 4.0 International License ABSTRACTBank stability is based on the depositors' trust in banks and the entire banking systems. One of the basic measures that provides these is the deposit insurance system as an integral part of the security network of each financial system. Its importance is particularly pronounced in times of instability and crisis, while in "good times" their positive effects are underestimated. Nevertheless, the deposit insurance system has also resulted in negative consequences in terms of bank risk mitigation, reduced market discipline, moral hazard risk, negative selection and principal-agent problems. The aim of the paper is to examine the effects of the deposit insurance system on bank stability in the pre-global financial crisis period, the crisis period and the post-global financial crisis period. The bank stability is approximated by measures of bank risk (z-score, non-performing loans in total loans) and deposit volatility (total deposits and interest expense of deposits). The research has included all types of credit institutions (1453) of the EU states and some selected SE European countries. The analysis has been verified by dynamic panel data analysis -GMM Arellano-Bond (AB) estimator in two steps. The empirical analysis results indicate that the effect of the deposit insurance system on banking stability, measured by bank risks and deposit volatility, depends on the system characteristics, i.e. the applied system design, in view of...

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Banking Instability and Deposit Insurance: The Role of Moral Hazard

Cited by 39 publications

References 33 publications

Does a deposit insurance scheme induce moral hazard among bankers? Evidence from an experiment with bankers

Does a deposit insurance scheme induce moral hazard among bankers? Evidence from an experiment with bankers

Micro-level Evidences of Moral Hazard in the European Financial Institutions

Učinci sustava osiguranja depozita na bankovni rizik

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