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Deposit Insurance, Banks’ Moral Hazard, and Regulation: Evidence from the ASEAN Countries and Korea

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  • Iljoong Kim
  • Inbae Kim
  • Yoonseon Han

Abstract

In this paper, we analyze the effect of deposit insurance (DI) on banks’ risk-taking for the ASEAN (Association of Southeast Asian Nations) countries and Korea. Previous studies focus primarily on developed countries or use mixed samples. The utilization of a panel data set consisting of 406 banks across our sample countries reveals that banks engage more actively in risk-taking in the presence of DI, that the adverse effect of DI is aggravated with extensive coverage, and that DI-related moral hazard is curbed through better regulatory quality. Particularly, risk-taking is relatively higher in Korea, but no difference is detected in the stabilizing effect of the regulatory quality. Relevant policy implications are offered.

Suggested Citation

  • Iljoong Kim & Inbae Kim & Yoonseon Han, 2014. "Deposit Insurance, Banks’ Moral Hazard, and Regulation: Evidence from the ASEAN Countries and Korea," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(6), pages 56-71, November.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:6:p:56-71
    DOI: 10.1080/1540496X.2014.1013875
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    Cited by:

    1. Kutan, Ali M. & Muradoğlu, Yaz G., 2016. "Financial and real sector returns, IMF-related news, and the Asian crisis," Finance Research Letters, Elsevier, vol. 16(C), pages 28-37.
    2. Al-Khouri, Ritab & Arouri, Houda, 2016. "The simultaneous estimation of credit growth, valuation, and stability of the Gulf Cooperation Council banking industry," Economic Systems, Elsevier, vol. 40(3), pages 499-518.
    3. Zhang, Dayong & Cai, Jing & Dickinson, David G. & Kutan, Ali M., 2016. "Non-performing loans, moral hazard and regulation of the Chinese commercial banking system," Journal of Banking & Finance, Elsevier, vol. 63(C), pages 48-60.

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