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The spread of deposit insurance and the global rise in bank asset risk since the 1970s

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  • Calomiris, Charles W.
  • Chen, Sophia

Abstract

We construct a new measure of deposit insurance generosity for many countries, empirically model the exogenous international influences on the adoption and generosity of deposit insurance and use a novel econometric method to explore the causal chain from the expansion of deposit insurance generosity to increased overall lending, increased lending to households, increased banking system leverage, and more severe and frequent banking crises. Greater deposit insurance generosity robustly produces greater overall lending relative to bank assets and more lending to households relative to both bank assets and GDP, and results in higher banking system leverage. Our estimates, however, are not conclusive regarding whether greater deposit insurance generosity resulted in greater total loans relative to GDP or in more frequent or severe banking crises.

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  • Calomiris, Charles W. & Chen, Sophia, 2022. "The spread of deposit insurance and the global rise in bank asset risk since the 1970s," Journal of Financial Intermediation, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:jfinin:v:49:y:2022:i:c:s1042957320300358
    DOI: 10.1016/j.jfi.2020.100881
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    More about this item

    Keywords

    Deposit insurance; Mortgage lending; Banking crises Moral hazard;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • 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
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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