Prague Economic Papers 2018, 27(5):588-605 | DOI: 10.18267/j.pep.676

Determinants of Deposit Insurance Coverage

Yiming Chang1, Shangmei Zhao2, Haijun Yang3,*, Jiang He4, Fei Hu5
1 School of Economics and Management, Beihang University, Beijing, China (changyiming@buaa.edu.cn)
2 School of Economics and Management, Beihang University, Beijing, China; Institute of Economics and Business, Beihang University, Beijing, China (beihangzsm@163.com)
3 School of Economics and Management, Beihang University, Beijing, China; Beijing Advanced Innovation Center for Big Data and Brain Computing, Beihang University, Beijing, China; Institute of Economics and Business and Management, Beihang University, Beijing, China (navy@buaa.edu.cn)
4 School of Economics and Management, Beihang University, Beijing, China (hejiang686@163.com)
5 School of Economics and Management, Beihang University, Beijing, China (hufeijr@sina.com)

On a comprehensive duration data set covering 189 countries from 1960 to 2015, we employ a Heckman two-step selection model to investigate determinants of deposit insurance coverage. We find that macroeconomic status, bank structure and regulatory, political institution, legal system and deposit insurance design characteristics have a significant effect on deposit insurance coverage. Moreover, empirical results show that the impact factors are different between developing and developed countries, especially the design characteristics. Specifically, for developing countries, the scheme with the Foreign currency will support a higher coverage. And for developed countries, the Interbank deposits will lead to a lower coverage, but the No coinsurance shows the opposite effect. It is noteworthy that both the Payouts and Backstop from government influence the coverage setting conversely in different samples, which implies that there may be higher banks' risk-taking incentives in developing countries after setting up explicit deposit insurance system.

Keywords: deposit insurance coverage, political economics, private interest theory, public interest theory, Heckman two-step model
JEL classification: G21, G22

Accepted: April 17, 2018; Published: October 1, 2018  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Chang, Y., Zhao, S., Yang, H., He, J., & Hu, F. (2018). Determinants of Deposit Insurance Coverage. Prague Economic Papers, 27(5), 588-605. doi: 10.18267/j.pep.676
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Acharya, S. (1996). Charter Value, Minimum Bank Capital Requirement and Deposit Insurance Pricing in Equilibrium. Journal of Banking & Finance, 20(2), 351-375, http://doi.org/10.1016/0378-4266(94)00126-X Go to original source...
    2. Aiyagari, S. R. (1994). Uninsured Idiosyncratic Risk and Aggregate Saving. The Quarterly Journal of Economics, 109(3), 659-684, http://doi.org/10.2307/2118417 Go to original source...
    3. Angkinand, A., Wihlborg, C. (2010). Deposit Insurance Coverage, Ownership, and Banks' Risk-Taking in Emerging Markets. Journal of International Money and Finance, 29(2), 252-274, Go to original source...
    4. http://doi.org/10.1016/j.jimonfin.2009.08.001 Go to original source...
    5. Barth, J. R., Caprio Jr, G., Levine, R. (2004). Bank Regulation and Supervision: What Works Best? Journal of Financial Intermediation, 13(2), 205-248, http://doi.org/10.1016/j.jfi.2003.06.002 Go to original source...
    6. Barth, J. R., Jr, G. C., Levine, R. (2013). Bank Regulation and Supervision in 180 Countries from 1999 to 2011. Journal of Financial Economic Policy, 5(2), 111-219, http://doi.org/10.1108/17576381311329661 Go to original source...
    7. Becker, G. (1976). Toward a More General Theory of Regulation. The Journal of Law & Economics, 19(2), 245-248, http://doi.org/10.1086/466867 Go to original source...
    8. Becker, G. S. (1983). A Theory of Competition among Pressure Groups for Political Influence. The  Quarterly Journal of Economics, 98(3), 371-400, http://doi.org/10.2307/1886017 Go to original source...
    9. Belsley, D. A. (1991). A Guide to Using the Collinearity Diagnostics. Computational Economics, 4(1), 33-50, http://doi.org/10.1007/BF00426854 Go to original source...
    10. Boyd, J. H., De NicolÓ, G. (2005). The Theory of Bank Risk Taking and Competition Revisited. The Journal of Finance, 60(3), 1329-1343, http://doi.org/10.1111/j.1540-6261.2005.00763.x Go to original source...
    11. Demirgüç-Kunt, A., Kane, E. J., Laeven, L. (2008). Determinants of Deposit-Insurance Adoption and Design. Journal of Financial Intermediation, 17(3), 407-438, http://doi.org/10.1016/j.jfi.2007.03.009 Go to original source...
    12. Demirgüç-Kunt, A., Kane, E. J., Laeven, L. (2014). Deposit Insurance Database. The World Bank. Policy Research Working Papers No. 6934. Go to original source...
    13. Diamond, D. W., Dybvig, P. H. (1983). Bank Runs, Deposit Insurance, and Liquidity. Journal of Political Economy, 91(3), 401-419, https://doi.org/10.1086/261155 Go to original source...
    14. Garcia, G. G. H. (2000). Deposit Insurance: Actual and Good Practices. Washington: International Monetary Fund. ISBN 9781557759481. Go to original source...
    15. Greene, W. H. (1981). Sample Selection Bias as a Specification Error: A Comment. Econometrica, 49(3), 795-798, http://doi.org/10.2307/1911523 Go to original source...
    16. Gros, D., Schoenmaker, D. (2014). European Deposit Insurance and Resolution in the Banking Union. JCMS: Journal of Common Market Studies, 52(3), 529-546, http://doi.org/10.1111/jcms.12124 Go to original source...
    17. Heckman, J. J. (1976). The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models. Annals of Economic and Social Measurement. 5. Cambridge: National Bureau of Economic Research. ISSN 0044-832X.
    18. Heckman, J. J. (1979). Sample Selection Bias as a Specification Error. Econometrica, 47(1), 153-161, http://doi.org/10.2307/1912352 Go to original source...
    19. IADI (2009). Governance of Deposit Insurance Systems, Guidance Paper, Prepared by Research and Guidance Committee. Basel: International Association of Deposit Insurers.
    20. Jayaratne, J., Strahan, P. E. (1996). The Finance-Growth Nexus: Evidence from Bank Branch Deregulation. The Quarterly Journal of Economics, 111(3), 639-670, http://doi.org/10.2307/2946668 Go to original source...
    21. Kroszner, R. S., Stratmann, T. (1998). Interest-Group Competition and the Organization of Congress: Theory and Evidence from Financial Services' Political Action Committees. The American Economic Review, 88(5), 1163-1187.
    22. Laeven, L. (2004). The Political Economy of Deposit Insurance. Journal of Financial Services Research, 26(3), 201-224, http://doi.org/10.1023/B:FINA.0000040049.53563.e1 Go to original source...
    23. Merton, R. C. (1977). An Analytic Derivation of the Cost of Deposit Insurance and Loan Guarantees: An Application of Modern Option Pricing Theory. Journal of Banking & Finance, 1(1), 3-11, http://doi.org/10.1016/0378-4266(77)90015-2 Go to original source...
    24. Saunders, A., Schumacher, L. (2000). The Determinants of Bank Interest Rate Margins: an International Study. Journal of International Money and Finance, 19(6), 813-832, http://doi.org/10.1016/S0261-5606(00)00033-4 Go to original source...
    25. Shy, O., Stenbacka, R., Yankov, V. (2016). Limited Deposit Insurance Coverage and Bank Competition. Journal of Banking & Finance, 71(1), 95-108, http://doi.org/10.1016/j.jbankfin.2016.05.002 Go to original source...
    26. Stigler, G. J. (1971). The Theory of Economic Regulation. The Bell Journal of Economics and Management Science, 2(1), 3-21, http://doi.org/10.2307/3003160 Go to original source...
    27. World Bank (2004). Deposit Insurance-Reforms Supported by the World Bank During the Period 1993-2004. Mimeo. Washington, DC: Operations Evaluation Department of World Bank.

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content