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Financial liberalization, deposit insurance and bank stability

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  • Ramin Cooper Maysami
  • Chris Sakellariou

Abstract

This article investigates the impact of implementing an explicit deposit insurance scheme on the likelihood of banking crisis in countries with well-liberalized financial systems. We estimate the probability of a systemic banking crisis using a multivariate logit model in which alternative variables capturing the nature of the deposit protection arrangement enter as explanatory variables along with a set of control variables. We conclude that deposit insurance will be successful in alleviating moral hazard and increase the stability of the financial system only if a sufficient degree of financial liberalization exists.

Suggested Citation

  • Ramin Cooper Maysami & Chris Sakellariou, 2008. "Financial liberalization, deposit insurance and bank stability," Applied Economics Letters, Taylor & Francis Journals, vol. 15(10), pages 743-747.
  • Handle: RePEc:taf:apeclt:v:15:y:2008:i:10:p:743-747
    DOI: 10.1080/13504850600749131
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    References listed on IDEAS

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    1. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October.
    2. Ms. G. G. Garcia, 2000. "Deposit Insurance and Crisis Management," IMF Working Papers 2000/057, International Monetary Fund.
    3. Huw Pill & Mahmood Pradhan, 1995. "Financial Indicators and Financial Change in Africa and Asia," IMF Working Papers 1995/123, International Monetary Fund.
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    Cited by:

    1. P.E. Morris, 2010. "Bank failure and deposit protection in offshore Britain: the case of Guernsey," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 18(3), pages 272-292, July.
    2. Lee, Chien-Chiang & Lin, Chun-Wei & Zeng, Jhih-Hong, 2016. "Financial liberalization, insurance market, and the likelihood of financial crises," Journal of International Money and Finance, Elsevier, vol. 62(C), pages 25-51.
    3. Noman, Abu Hanifa Md. & Hassan, M. Kabir & Pervin, Sajeda & Isa, Che Ruhana & Sok-gee, Chan, 2022. "The mediating role of competition on deposit insurance and the risk-taking of banks in ASEAN countries," Research in International Business and Finance, Elsevier, vol. 59(C).

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