Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation
Based on evidence of 61 countries in 1980-97, the authors find that explicit deposit insurance tends to be detrimental to bank stability, the more so where bank interest rates are deregulated and the institutional environment is weak. The adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors, and where the scheme is funded and run by the government rather than the private sector.
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