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Heterogeneous Adjustments in Bank Leverage after Deposit Insurance Adoption

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  • Mathias Lé

    (ACPR - Autorité de Contrôle Prudentiel et de Résolution - Autorité de Contrôle Prudentiel et de Résolution, PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This paper empirically investigates the bank leverage adjustments after deposit insurance adoption. Banks are found to increase significantly their leverage after the introduction of deposit insurance. However, the banks' responses appear to be heterogenous. The magnitude of the change in bank leverage decreases with (i) the size, (ii) the systemicity and (iii) the initial capitalisation of banks so that the most systemic and the most highly leveraged banks are unresponsive to deposit insurance. As a result, implementing a deposit insurance scheme could have important competitive effects.

Suggested Citation

  • Mathias Lé, 2014. "Heterogeneous Adjustments in Bank Leverage after Deposit Insurance Adoption," PSE Working Papers halshs-01074956, HAL.
    • Handle: RePEc:hal:psewpa:halshs-01074956
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01074956
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    References listed on IDEAS

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    More about this item

    Keywords

    Deposit Insurance; Bank Risk-Taking; Leverage; Systemic Bank; Capital Buffer; Market Discipline; Too Big to Fail;
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