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The Determinants of Deposit Insurance Coverage: Evidence from 74 Countries

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  • Hung Ling Chen
  • Edward H. Chow
  • Wan Yu Liu

Abstract

Using data from 74 countries between the years of 1960 to 2008, we performed panel regressions and logit models on political settings and the economic situation to identify which factors influence deposit insurance coverage and the probability of changes in coverage. Results reveal that countries with higher coverage are those with less political openness, lower interest rate spreads and deposit interest rates; conversely, we find that coverage tends to be higher in countries with greater levels of government debt. Considering the time-invariant country heterogeneity, countries with lower interest rate spreads are likely to increase the coverage and the probability of changes in coverage. The results could provide reference points for policymakers in considering the setting of deposit insurance schemes, with the aim of ensuring financial stability.

Suggested Citation

  • Hung Ling Chen & Edward H. Chow & Wan Yu Liu, 2014. "The Determinants of Deposit Insurance Coverage: Evidence from 74 Countries," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(4), pages 13-21, October.
    • Handle: RePEc:jfr:ijfr11:v:5:y:2014:i:4:p:13-21
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    References listed on IDEAS

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    1. Kam Hon Chu, 2003. "Deposit Insurance and Banking Crises in the Short and Long Run," Cato Journal, Cato Journal, Cato Institute, vol. 23(2), pages 265-280, Fall.
    2. Cull, Robert & Senbet, Lemma W & Sorge, Marco, 2005. "Deposit Insurance and Financial Development," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 43-82, February.
    3. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
    4. Zarruk, Emilio R. & Madura, Jeff, 1992. "Optimal Bank Interest Margin under Capital Regulation and Deposit Insurance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(1), pages 143-149, March.
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