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Deposit Insurance and Financial Development
TL;DR: Cull et al. as discussed by the authors examined the effect of different design features of deposit insurance on long-run financial development, defined to include the level of financial activity, the stability of the banking sector, and the quality of resource allocation.
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Abstract: Do deposit insurance programs contribute to financial development? Yes, but only if the regulatory environment is sound. Cull, Senbet, and Sorge examine the effect of different design features of deposit insurance on long-run financial development, defined to include the level of financial activity, the stability of the banking sector, and the quality of resource allocation. Their empirical analysis is guided by recent theories of banking regulation that employ an agency framework. The authors examine the effect of deposit insurance on the size and volatility of the financial sector in a sample of 58 countries. They find that generous deposit insurance leads to financial instability in lax regulatory environments. But in sound regulatory environments, deposit insurance does have the desired impact on financial development and growth. Thus countries introducing a deposit insurance scheme need to ensure that it is accompanied by a sound regulatory framework. Otherwise, the scheme will likely lead to instability and deter financial development. In weak regulatory environments, policymakers should at least limit deposit insurance coverage. This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to design financial safety nets for developing countries. The study was funded by the Bank's Research Support Budget under the research project "Deposit Insurance" (RPO 682-90). Robert Cull may be contacted at rcull@worldbank.org.
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Citations
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Zur Reform der Einlagensicherung in Weißrussland - Kritische Analyse und Vergleich mit dem Deutschen Einlagensicherungssystem
TL;DR: The deposit insurance reform in Belarus aims at attracting more private savers? funds into the governmental directed economy as discussed by the authors. But the establishment of a deposit insurance system that does not precisely fit the country's specific situation is prone to moral hazard effects which could further destabilize the fragile banking system that suffers from high concentration, governmental interference and a weak economy.
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Does Deposit Insurance Retard the Development of Financial Markets
TL;DR: The authors found that the introduction of deposit insurance retards the development of nonbank financial markets, the banking sector, and hence the overall financial market, and that design features that benefit depositors influence the negative effect on nonbank markets.
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Bank asset structure and deposit insurance pricing
TL;DR: In this paper, the authors model deposit insurance as a European put option on the value of the bank in which bank assets follow a displaced lognormal diffusion process, and derive closed-form solutions for the bank value for bank equity holders, depositors, and the deposit insurer under three deposit insurance schemes.
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Bank deposit activity in Ukraine: Directions and factors of development activation
Marianna Kichurchak
- 31 Mar 2019
TL;DR: In this article, a comparative analysis of the long-term dynamics (2000-2017) of the placement of deposits in Ukrainian, Belarussian, and Polish banking systems as a result of socioeconomic development trends in these countries is presented.
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Not all bank systemic risks are alike: Deposit insurance and bank risk revisited
TL;DR: In this article, the authors investigated how deposit insurance, especially in terms of its design features, affects the sources of banking systemic risk and found that there is a U-shaped relationship between coverage and systemic risk, indicating the existence of an optimal coverage level that minimizes systemic risk.
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