Ngalawa, Harold and Tchana Tchana, Fulbert and Viegi, Nicola (2011): Banking Instability and Deposit Insurance: The Role of Moral Hazard.
Download (185Kb) | Preview
This paper aims at empirically investigating the role of moral hazard in the e¢ ctivity of deposit insurance in achieving banking stability. If the negative e¤ect of deposit insurance on banking stability is through moral hazard, then deposit insurance will be associated with banking insolvency and credit crunch more than with bank runs. To test this hypothesis, we compute measures of these two types of banking instability. We �nd that deposit insurance per se has no signi�cant e¤ect either on bank insolvency and credit crunch or on bank runs. However, when the deposit insurance is coupled with an increase in credit to private sector, it has a positive and signi�cant e¤ect on bank insolvency and credit crunch but not on bank runs.
|Item Type:||MPRA Paper|
|Original Title:||Banking Instability and Deposit Insurance: The Role of Moral Hazard|
|Keywords:||Banking Crises, Deposit Insurance, Moral hazard|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Fulbert TCHANA TCHANA|
|Date Deposited:||09. Jun 2011 03:18|
|Last Modified:||12. Feb 2013 00:59|
Adao, B. and Temzelides, T. (1998). Sequential equilibrium and competition in a diamond-dybvig banking model, Journal of Economic Dynamics 1: 859.877.
Alert, T. M. (2010). Fdic insurance: Are you covered. URL: http://www.themoneyalert.com/FDICinsurance.html
Allen, F. and Gale, G. (1998). Optimal .nancial crises, The Journal of Finance 53(4): 1245.1284.
Andolfatto, D., Nosal, E. andWallace, N. (2006). The role of economic independence in the green-in Diamond-Dybvig model, Journal of Economic Theory 137: 709.715.
Bryant, J. (1980). A model of reserves, bank runs and deposit insurance, Journal of Banking and Finance 4: 335.344.
Calomiris, C. (1990). Is deposit insurance necessary? a historical perspective, The Journal of Economic History 50(2): 283.295.
Caprio, G. J. and Klingebiel, D. (1997). Bank insolvency: Bad luck, bad policy or bad banking?, Annual World Bank Conference on Development Economics, 1996 .
Carapella, F. and Di Giorgio, G. (2004). Deposit insurance, institutions and bank interest rates, Transition Studies Review 11(3): 77.92.
Carmona, G. (2004). On the existence of equilibrium bank runs in a diamond dybvig environment, Unpublished Manuscript, Universidade Nova de Lisboa .
Chang, R. and Velasco, A. (2001). A model of .nancial crises in emerging markets, The Quarterly Journal of Economics 116(2): 489.517.
Chari, V. and Jagannathan, R. (1988). Banking panics, information, and rational expectations equilibrium, The Journal of Finance 43(3): 749.761.
Cole, R. and Gunther, J. (1995). Separating the likelihood and timing of bank failure, Journal of Banking and Finance 19: 1073.1089.
Cull, R., Senbet, L. and Sorge, M. (2005). Deposit insurance and financial development, Journal of Money, Credit and Banking 37(1): 43.82.
Demirgüç-Kunt, A. and Detragiache, E. (1998). The determinants of banking crises in developing and developed countries, IMF Staff papers 45(1): 81.109.
Demirgüç-Kunt, A. and Detragiache, E. (2002). Does deposit insurance increase banking system instability? an empirical investigation, Journal of Monetary Economics 49: 1373.1406.
Demirgüç-Kunt, A., Kane, E. and Laeven, L. (2008). Determinants of deposit insurance adoption and design, Journal of Financial Intermediation 7: 407.438.
Demirgüç-Kunt, A., Karakaovali, B. and Laeven, L. (2005). Deposit insurance around the world: A comprehensive database, World Bank Policy Research Working Paper No. 3628 (1).
Diamond, D. and Dybvig, P. (1983). Bank runs, deposit insurance and liquidity, The Journal of Political Economy 91(3): 401.419.
Diamond, D. and Dybvig, P. (1986). Bank theory, deposit insurance and bank regulation, The Journal of Business 59(1): 55.68.
Eichengreen, B., Rose, A. and Wyplosz, C. (1995). Exchange market mayhem: The intecedents and aftermath of speculative attacks, Economic Policy 21: 249.296.
Eichengreen, B., Rose, A. and Wyplosz, C. (1996a). Contagious currency crises: First tests, Scandnavian Journal of Economics 98(4): 463.484.
Eichengreen, B., Rose, A. and Wyplosz, C. (1996b). Speculative attacks on pegged exchange rate: An empirical exploration with special reference to the European monetary system, In "The New Transatlantic Economy" edited by Matthew B.
Canzoneri, Wilfred J. Ethier, and Vittorio Grilli pp. 191.228. Fischer, I. (1911). The Purchasing Power of Money: Its Determination and Relation to Credit, Interest and Money, New York: MacMillan.
Fischer, S. (1999). On the need for an international lender of last resort, Journal of Economic Perspectives 13(4): 85.104.
Folkerts-Landau, D. and Lindgren, C. (1998). Towards a framework for financial stability, mimeo, International Monetary Fund.
Fontenla, M. and Gonzalez, F. (2007). Self-fulfilling and fundamental banking crises: A multinomial logit approach, Economic Bulletin 6(17): 1.11.
Freixas, X., Giannini, C., Hoggarth, G. and Soussa, F. (2000). Lender of last resort: What have we learned since Bagehot?, Journal of Financial Services Research 18(1): 63.84. Gennote, G. and Pyle, D. (1991). Capital controls and bank risk, Journal of Banking and Finance 19: 1159.1173.
Gonzalez-Hermosillo, B., Pazarbasioglu, C. and Billings, R. (1997). Determinants of banking system fragility: A case study of Mexico, IMF Staff papers 44(3): 295. 314.
Green, E. and Lin, P. (2003). Implementing efficient allocations in a model of financial intermediation, Journal of Economic Theory 109: 1.23.
Greene, W. (2003). Econometric Analysis, 5th edn, Pearson Education Inc.
Hazlett, D. (1997). Deposit insurance and regulation in a Diamond-Dybvig banking model with a risky technology, Economic Theory 9(3): 453.470.
Kahn, C. and Santos, S. (2005). Allocating bank regulatory powers: Lender of last resort, deposit insurance and supervision, European Economic Review 49: 2107. 2136.
Laeven, L. (2002). Bank risk and deposit insurance, The World bank economic Review 16(1): 109.137.
MacDonald, R. (1996). Deposit Insurance, Handibook No. 9 in Central Banking Issued by the Centre for central banking Studies, Bank of England, London.
Marini, F. (2003). Bank insolvency, deposit insurance and capital adequacy, Journal of Financial Services Research 24: 67.78. McCoy, P. (2007). The moral hazard implications of deposit insurance: Theory and evidence, Paper presented at a seminar on current developments in Monetary and Financial Law, Washington D.C., October 23-27, 2006 . Rochet, J.-C. and Vives, X. (2004). Coordination failures and the lender of last resort: Was Bagehot right after all?, Journal of the European Economic Association 2(6): 1116.1147. Talley, S. and Mas, I. (1990). Deposit insurance in developing countries, World Bank Policy, Research and External Affairs Working Paper Series WP No. 548. Von Hagen, J. and Ho, T.-K. (2007). Money market pressure and the determinants of banking crises, Journal of Money, Credit and Banking 39(5): 1037.1066. Wheelock, D. and Wilson, P. (1995). Explaining bank failures: Deposit insurance, regulation and efficiency, The Review of Statistics 77(4): 689.700. Wood, J. (2003). Bagehot.s lender of last resort: A hollow hallowed tradition, The Indepen