The Political Economy of Deposit Insurance

The Political Economy of Deposit Insurance

The author uses a political economy framework to analyze cross-country differences in deposit insurance coverage. He finds supporting evidence of the significance of private interest theories in explaining coverage of deposit insurance. Deposit insurance coverage is significantly higher in countries where poorly capitalized banks dominate the market and in countries where depositors are poorly educated. The author does not find that coverage is significantly related to political-institutional variables, such as the degree of democracy or restraints on the executive, or to proxies for the general level of institutional development, such as per capita income or property rights. These results provide evidence in support of the private interest view, according to which risky banks lobby for extensive coverage.

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Bibliographic Details
Main Author: Laeven, Luc
Language:English
en_US
Published: World Bank, Washington, D.C. 2004-03
Subjects:ACCOUNTABILITY, BANK CAPITAL, BANK DEPOSITS, BANK REGULATION, BANK RISK, BANK SIZE, BANKING INDUSTRY, BANKING STRUCTURE, BANKING SYSTEM, BANKING SYSTEMS, BANKS, BRANCH BANKING, CAPITALIZATION, CENTRAL BANKS, COALITION GOVERNMENTS, COMMERCIAL BANKS, COMPETITIVENESS, CORPORATE GOVERNANCE, CREDIT UNIONS, DEPOSIT INSURANCE, DEPOSIT INSURANCE COVERAGE, DEPOSIT INSURANCE PREMIUMS, DEPOSIT INSURANCE SCHEMES, DEPOSIT INSURANCE SYSTEMS, DEPOSITOR PROTECTION, DEPOSITORS, DEPOSITS, ECONOMICS, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FINANCIAL SERVICES, FINANCIAL STABILITY, FINANCIAL STRUCTURE, FISCAL POLICY, INSTITUTIONAL DEVELOPMENT, INSTITUTIONAL SETUP, INSURANCE ACTIVITIES, INSURANCE AGENCIES, INSURANCE COMPANIES, INSURANCE DESIGN, INSURANCE INDUSTRY, INSURANCE LIMITS, INSURANCE POLICIES, INSURANCE PRODUCTS, INSURANCE REGULATION, INTERNATIONAL BANKS, LAWS, LEGAL PROTECTION, LIQUID ASSETS, MORAL HAZARD, NONPERFORMING LOANS, PRIVATE BANKS, PUBLIC DEBT, RATES, RISK OF BANK FAILURE, SAVINGS, SHAREHOLDERS, SMALL BANKS, SOCIAL SECURITY, SOCIAL SECURITY PROGRAMS, SOCIAL SECURITY SYSTEMS, STOCK MARKETS DEPOSIT INSURANCE, DEPOSITORS SAFETY, FOREIGN BANK ACCOUNTS, CONFIDENCE IN BANKS, PROXY,
Online Access:http://documents.worldbank.org/curated/en/2004/03/4066087/political-economy-deposit-insurance
https://hdl.handle.net/10986/14121
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Summary:The author uses a political economy framework to analyze cross-country differences in deposit insurance coverage. He finds supporting evidence of the significance of private interest theories in explaining coverage of deposit insurance. Deposit insurance coverage is significantly higher in countries where poorly capitalized banks dominate the market and in countries where depositors are poorly educated. The author does not find that coverage is significantly related to political-institutional variables, such as the degree of democracy or restraints on the executive, or to proxies for the general level of institutional development, such as per capita income or property rights. These results provide evidence in support of the private interest view, according to which risky banks lobby for extensive coverage.

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