Bank moral hazard and the introduction of official deposit insurance in Canada

Gueyié, Jean‐Pierre; Lai, Van Son

doi:10.1016/s1059-0560(02)00106-5

Cited by 48 publications

(33 citation statements)

References 46 publications

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“…First, deposit insurance increases depositor confidence which can 3 We thank an anonymous referee for the suggestion to consider the role of risk shifting behavior during the 1997/98 crisis in Indonesian banks. 4 In contrast, Karels and McClatchey (1999) and Gueyie and Lai (2003) do not find evidence of excessive risk taking or moral hazard following the introduction of deposit insurance.…”

Section: Literature Reviewmentioning

confidence: 97%

Government intervention, bank ownership and risk-taking during the Indonesian financial crisis

Agusman

Cullen

Gasbarro

et al. 2014

Pacific-Basin Finance Journal

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The 1997/98 financial crisis forced the Indonesian government to inject capital into selected banks, introduce deposit insurance and change capital requirements. This study investigates the relation between highly concentrated ownership and bank risk-taking using a sample of 52 insured private commercial Indonesian banks during the 1995-2003 period. For restructured banks, ownership concentration is positively related to overall risk, and negatively related to credit and liquidity risk, especially during the relaxed capital adequacy requirement period. Liquidity risk is reduced when the government and owners contribute additional capital, and credit risk is lowered as the government removes bad loans from problematic banks.JEL classification: G21, G28, G30, G32.

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Section: Literature Reviewmentioning

confidence: 97%

Government intervention, bank ownership and risk-taking during the Indonesian financial crisis

Agusman

Cullen

Gasbarro

et al. 2014

Pacific-Basin Finance Journal

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“…Gueyie and Lai (2003), for example, argue that the disciplining factors of bank risk taking include regulatory discipline, bank self discipline (charter value), and market discipline. Indeed, a number of studies have examined the role of market discipline in controlling bank risk and market discipline is one of the three pillars in the capital adequacy framework of the Basel Accord II.…”

Section: Introductionmentioning

confidence: 99%

Market Discipline, Financial Crisis and Regulatory Changes: Evidence from Indonesian Banks

Hadad¹,

Agusman

Monroe

et al. 2009

SSRN Journal

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Following the 1997/1998 financial crisis, Indonesian banks experienced major regulatory changes, including the adoption of the Blanket Guarantee Scheme (BGS) in 1998, a limited guarantee (LG) in 2005, and changes in capital regulation in 1998 and 2001. We examine the impact of these regulatory changes on market discipline during the period 1995-2009. The price of deposits is used to measure market discipline in a dynamic panel data methodology on a sample of 104 commercial banks. We find a weakening of market discipline following the introduction of the BGS. The result is consistent with the deposit insurance scheme being credible in the lower capital requirement environment. The adoption of LG in a recovering economy also mitigates the role of market discipline. However, market discipline is more pronounced in listed banks than unlisted banks and in foreign banks than domestic banks. These results have important implications for banking regulation and supervision, particularly during a crisis period.

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“…Karels and McClatchey (1999) show that the introduction of deposit insurance has not led to increased risk-taking in the US credit union industry. Gueyie and Lai (2003) find no empirical support for the hypothesis that the adoption of official deposit insurance creates moral hazard. They conclude that the risk-based deposit insurance is unlikely to have an effect on bank risk.…”

Section: Previous Empirical Evidencementioning

confidence: 78%

The Effect of Deposit Insurance on Risk Taking in Asian Banks

Enkhbold

Otgonshar

2013

AJFA

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This paper uses a panel database of 401 banks in 31 Asian countries over the period from 2000 to 2010 to examine the effects of deposit insurance on banks' risk-taking incentives. We find that risk-taking incentives vary with bank size and risks. In addition, differentiated premiums may not accurately reflect the level of risk that a bank poses. In the presence of a deposit insurance scheme, the pattern of the non-linear relationship between bank size and risk-taking significantly changes. Our results suggest that market discipline exercised by banks is stronger in the presence of mandatory deposit insurance scheme. Government-funded deposit insurance funds allow Asian banks to take a higher risk. A risk-based deposit insurance scheme functions more effectively in the countries with good regulatory framework and institutional quality.

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Bank moral hazard and the introduction of official deposit insurance in Canada

Cited by 48 publications

References 46 publications

Government intervention, bank ownership and risk-taking during the Indonesian financial crisis

Government intervention, bank ownership and risk-taking during the Indonesian financial crisis

Market Discipline, Financial Crisis and Regulatory Changes: Evidence from Indonesian Banks

The Effect of Deposit Insurance on Risk Taking in Asian Banks

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