Deposit Insurance and Financial Development
The authors examine the effect of different design features of deposit insurance, on long-run financial development, defined to include the level of financial activity, the stability of the banking sector, and the quality of resource allocation. Th...
| Main Authors: | , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/09/1614763/deposit-insurance-financial-development http://hdl.handle.net/10986/19537 |
| Summary: | The authors examine the effect of
different design features of deposit insurance, on long-run
financial development, defined to include the level of
financial activity, the stability of the banking sector, and
the quality of resource allocation. Their empirical analysis
is guided by recent theories of banking regulation, that
employ an agency framework. The authors examine the effect
of deposit insurance on the size, and volatility of the
financial sector, in a sample of fifty eight countries. They
find that generous deposit insurance, leads to financial
instability in lax regulatory environments. But in sound
regulatory environments, deposit insurance does have the
desired impact on financial development, and growth. Thus,
countries introducing a deposit insurance scheme, need to
ensure that it is accompanied by a sound regulatory
framework. Otherwise, the scheme will likely lead to
instability, and deter financial development. In weak
regulatory environments, policymakers should at least limit
deposit insurance coverage. |
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