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Measuring the impact of changing deposit insurance coverage levels: Findings from Colombia

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  • Quintero-V, Juan C.

Abstract

This paper examines the effects on social welfare of changes in coverage levels within deposit insurance schemes. It utilizes a solid theoretical framework and takes advantage of a quasi-natural experiment and bank-level data to measure the impact of an increase in Colombia’s deposit insurance coverage level. For the case studied, the benefits outweigh the costs, resulting in a positive net impact on welfare. However, some banks concentrate most of the gains. The size of a bank, its probability of default, and the change in the percentage of insured deposits that occurred due to the increase in the coverage level are critical. Two extensions of the main model are also analyzed. The first allows banks to be bailed out because of “too-big-to-fail” considerations, and the second incorporates banks’ reaction to the increase in the coverage level. The benefits of increasing the coverage level remain positive in both cases but are lower than using the main model.

Suggested Citation

  • Quintero-V, Juan C., 2025. "Measuring the impact of changing deposit insurance coverage levels: Findings from Colombia," Journal of Banking & Finance, Elsevier, vol. 175(C).
    • Handle: RePEc:eee:jbfina:v:175:y:2025:i:c:s037842662500055x
    DOI: 10.1016/j.jbankfin.2025.107435
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    More about this item

    Keywords

    Deposit insurance; Deposit insurance coverage level; Bank bailouts; Moral hazard;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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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