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The Spread of Deposit Insurance and the Global Rise in Bank Asset Risk since the 1970s

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  • Charles W. Calomiris
  • Sophia Chen

Abstract

The paper constructs a new measure of the changing generosity of deposit insurance for many countries, empirically model the international influences on the adoption and generosity of deposit insurance, and show that the expansion of deposit insurance generosity increased asset risk in banking systems. It considers three asset risk measures: higher loans-to-assets, a higher proportion of lending to households, and a higher proportion of mortgage lending. None of the observed increases in these indicators is offset by declines in banking system leverage. The paper shows that increased asset risk explains at least part of the positive association between deposit insurance and the likelihood and severity of systemic banking crises.

Suggested Citation

  • Charles W. Calomiris & Sophia Chen, 2018. "The Spread of Deposit Insurance and the Global Rise in Bank Asset Risk since the 1970s," Working Papers id:12909, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:12909
    Note: Institutional Papers
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    Cited by:

    1. Charles W. Calomiris & Matthew Jaremski, 2016. "Deposit Insurance: Theories and Facts," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 97-120, October.
    2. Quintero-V, Juan C., 2023. "Deposit insurance and market discipline," Journal of Financial Stability, Elsevier, vol. 64(C).
    3. Calomiris, Charles W. & Flandreau, Marc & Laeven, Luc, 2016. "Political foundations of the lender of last resort: A global historical narrative," Journal of Financial Intermediation, Elsevier, vol. 28(C), pages 48-65.
    4. Theo Kiriazidis, 2017. "The European Deposit Insurance in Perspective," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 112, Hellenic Observatory, LSE.
    5. George Pennacchi, 2019. "Banks, Taxes, and Nonbank Competition," Journal of Financial Services Research, Springer;Western Finance Association, vol. 55(1), pages 1-30, February.
    6. Kiriazidis, Theo, 2017. "The European deposit insurance in perspective," LSE Research Online Documents on Economics 84107, London School of Economics and Political Science, LSE Library.
    7. Viral V. Acharya & Nirupama Kulkarni, 2019. "Government Guarantees and Bank Vulnerability during a Crisis: Evidence from an Emerging Market," NBER Working Papers 26564, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    eSS; deposit insurance; global rise; bank asset risk; generosity of deposit insurance; insurance; banking system; risk management; risk measures; higher loans-to-assets; a higher proportion of lending to households; mortgage lending; asset risk; positive association; likelihood; systemic banking crises;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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