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Capital regulation, deposit insurance and bank risk: International evidence from normal and crisis periods

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  • Ashraf, Badar Nadeem
  • Zheng, Changjun
  • Jiang, Chonghui
  • Qian, Ningyu

Abstract

In this paper, we examine the impact of capital regulation on bank risk and the moderating role of deposit insurance on the relationship between capital regulation and bank risk during both normal and crisis periods. Using an international sample of banks from 111 countries, our results show that stringent capital regulation reduces bank default risk, in general, during normal growth period, and this effect is not conditioned by the existence of explicit deposit insurance. Further, stringent capital regulation in place during the pre-crisis period reduces bank default risk during the crisis period, and this effect is stronger for countries with explicit deposit insurance during the pre-crisis period. These results have important policy implications to design the optimal bank regulations.

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  • Ashraf, Badar Nadeem & Zheng, Changjun & Jiang, Chonghui & Qian, Ningyu, 2020. "Capital regulation, deposit insurance and bank risk: International evidence from normal and crisis periods," Research in International Business and Finance, Elsevier, vol. 52(C).
  • Handle: RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531918311231
    DOI: 10.1016/j.ribaf.2020.101188
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    More about this item

    Keywords

    Bank risk; Bank risk-taking; Capital regulation; Deposit insurance; Financial crisis;
    All these keywords.

    JEL classification:

    • 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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