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How does deposit insurance affect household's risk sensitivity？Evidence from China

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  • Zhao, Jing
  • Gao, Yaqin
  • Zhao, Lijuan

Abstract

Based on the differential protection of household deposits and wealth management products in the limited deposit insurance system, this paper explores effectiveness of bank market discipline and the impact of deposit insurance on market discipline. Using the panel data of Chinese banking industry during 2010–2016, the empirical result shows that, firstly, households are sensitive to bank risks such as capital to asset ratio and non-performing loan ratio (NPL ratio) during the period 2010–2016. Thus, market discipline plays a certain role in the banking industry before introducing deposit insurance. Secondly, deposit insurance increases the risk sensitivity of banks’ wealth management products to capital to assets ratio and NPL ratio, while reducing the risk response of household deposits to these two ratios.

Suggested Citation

  • Zhao, Jing & Gao, Yaqin & Zhao, Lijuan, 2024. "How does deposit insurance affect household's risk sensitivity？Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:riibaf:v:67:y:2024:i:pb:s0275531923002775
    DOI: 10.1016/j.ribaf.2023.102151
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    References listed on IDEAS

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    More about this item

    Keywords

    Deposit insurance; Market discipline; Risk sensitivity;
    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
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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