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Resolution of failed banks by deposit insurers : cross-country evidence

  • Beck, Thorsten
  • Laeven, Luc

There is a wide cross-country variation in the institutional structure of bank failure resolution, including the role of the deposit insurer. The authors use quantitative analysis for 57 countries and discuss specific country cases to illustrate this variation. Using data for over 1,700 banks across 57 countries, they show that banks in countries where the deposit insurer has the responsibility of intervening failed banks and the power to revoke membership in the deposit insurance scheme are more stable and less likely to become insolvent. Involvement of the deposit insurer in bank failure resolution thus dampens the negative effect that deposit insurance has on banks'risk taking.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3920.

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Date of creation: 01 May 2006
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Handle: RePEc:wbk:wbrwps:3920
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  1. Beck, Thorsten, 2001. "Deposit insurance as private club - Is Germany a model?," Policy Research Working Paper Series 2559, The World Bank.
  2. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Department of Economics Working Papers 2008-07, Department of Economics, Williams College.
  3. Demirguc-Kunt, Asli & Detragiache, Enrica, 1999. "Does deposit insurance increase banking system stability ? An empirical investigation," Policy Research Working Paper Series 2247, The World Bank.
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  6. Michael P. Dooley & Jeffrey A. Frankel, 2003. "Managing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number dool03-1, August.
  7. Luc Laeven, 2004. "The Political Economy of Deposit Insurance," Journal of Financial Services Research, Springer, vol. 26(3), pages 201-224, December.
  8. De la Torre, Augusto, 2000. "Resolving bank failures in Argentina - recent developments and issues," Policy Research Working Paper Series 2295, The World Bank.
  9. Ronn, Ehud I & Verma, Avinash K, 1986. " Pricing Risk-Adjusted Deposit Insurance: An Option-Based Model," Journal of Finance, American Finance Association, vol. 41(4), pages 871-95, September.
  10. Stijn Claessens & Leora F. Klapper, 2005. "Bankruptcy around the World: Explanations of Its Relative Use," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 253-283.
  11. Stijn Claessens & Daniela Klingebiel & Luc Laeven, 2001. "Financial Restructuring in Banking and Corporate Sector Crises: What Policies to Pursue?," NBER Working Papers 8386, National Bureau of Economic Research, Inc.
  12. Timothy H. Hannan & Gerald A. Hanweck, 1986. "Bank insolvency risk and the market for large certificates of deposit," Working Papers in Banking, Finance and Microeconomics 86-1, Board of Governors of the Federal Reserve System (U.S.).
  13. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  14. Gilson, Stuart C & Hotchkiss, Edith S & Ruback, Richard S, 2000. "Valuation of Bankrupt Firms," Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 43-74.
  15. Oliver Hart, 2000. "Different Approaches to Bankruptcy," Harvard Institute of Economic Research Working Papers 1903, Harvard - Institute of Economic Research.
  16. Kane, Edward J & Wilson, Berry K, 1998. "A Contracting-Theory Interpretation of the Origins of Federal Deposit Insurance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 573-95, August.
  17. Asli Demirgüç-Kunt & Enrica Detragiache, 2000. "Does Deposit Insurance Increase Banking System Stability?," IMF Working Papers 00/3, International Monetary Fund.
  18. Ross Levine, 2002. "Bank-Based or Market-Based Financial Systems: Which is Better?," NBER Working Papers 9138, National Bureau of Economic Research, Inc.
  19. Randall S. Kroszner & Thomas Stratmann, 1998. "Interest Group Competition and the Organization of Congress: Theory and Evidence from Financial Services' Political Action Committees," CRSP working papers 349, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  20. Asli Demirguc-Kunt & Edward J. Kane, 2002. "Deposit Insurance Around the Globe: Where Does It Work?," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 175-195, Spring.
  21. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
  22. Beck, Thorsten, 2003. "The incentive-compatible design of deposit insurance and bank failure resolution : concepts and country studies," Policy Research Working Paper Series 3043, The World Bank.
  23. Robert R. Bliss & George Kaufman, 2006. "U.S. corporate and bank insolvency regimes: an economic comparison and evaluation," Working Paper Series WP-06-01, Federal Reserve Bank of Chicago.
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  25. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
  26. Luc Laeven, 2002. "Bank Risk and Deposit Insurance," World Bank Economic Review, World Bank Group, vol. 16(1), pages 109-137, June.
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  28. repec:cup:cbooks:9780521851855 is not listed on IDEAS
  29. Jith Jayaratne & Philip E. Strahan, 1995. "The finance-growth nexus: evidence from bank branch deregulation," Research Paper 9513, Federal Reserve Bank of New York.
  30. Mayes, David G., 2004. "Who pays for bank insolvency?," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 515-551, April.
  31. Claessens, Stijn & Djankov, Simeon & Klapper, Leora, 1999. "Resolution of corporate distress - evidence from East Asia's financial crisis," Policy Research Working Paper Series 2133, The World Bank.
  32. Clas Wihlborg & Shubhashis Gangopadhyay, 2001. "Infrastructure Requirements in the Area of Bankruptcy Law," Center for Financial Institutions Working Papers 01-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
  33. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
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