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The Deposit Insurance and the Risk-Shifting Incentive Evidence from the Blanket Deposit Insurance in Japan

Author

Listed:
  • Brahim Guizani

    (Graduate School of Economics and Management, Tohoku University)

  • Wako Watanabe

    (Faculty of Business and Commerce, Keio University)

Abstract

Using the option pricing based model of the deposit insurance, for all the listed banks in Japan, we compute the actuarially fair insurance premium as well as the market value of assets and asset volatility implied by banks' stock prices. The findings based on these variables imply that banks shifted risks to the deposit insurer who charged them risk insensitive premiums. The temporary unlimited blanket coverage of all the deposits had accelerated risk-shifting before the prompt corrective action (PCA) though such acceleration of risk-shifting was prevented when PCA were in effect as the regulatory discipline discouraged banks to lever.

Suggested Citation

  • Brahim Guizani & Wako Watanabe, 2010. "The Deposit Insurance and the Risk-Shifting Incentive Evidence from the Blanket Deposit Insurance in Japan," Keio/Kyoto Joint Global COE Discussion Paper Series 2010-004, Keio/Kyoto Joint Global COE Program.
    • Handle: RePEc:kei:dpaper:2010-004
    as

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    References listed on IDEAS

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    Cited by:

    1. SEKINO Masahiro & WATANABE Wako, 2014. "Does the Policy Lending of the Government Financial Institution Substitute for the Private Lending during the Period of the Credit Crunch? Evidence from loan level data in Japan," Discussion papers 14063, Research Institute of Economy, Trade and Industry (RIETI).
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    3. Alaa Alaabed & Mansur Masih & Abbas Mirakhor, 2016. "Investigating risk shifting in Islamic banks in the dual banking systems of OIC member countries: An application of two-step dynamic GMM," Risk Management, Palgrave Macmillan, vol. 18(4), pages 236-263, December.

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