Deposit insurance and bank regulation in a monetary economy: a general equilibrium exposition

Summary. It is commonly argued that poorly designed banking system safety nets are largely to blame for the frequency and severity of modern banking crises. For example, underpriced deposit insurance and/or low reserve requirements are often viewed as factors that encourage risk-taking by banks. In this paper, we study the effects of three policy variables: deposit insurance premia, reserve requirements and the way in which the costs of bank bailouts are financed. We show that when deposit insurance premia are low, the monetization of bank bailout costs may not be more inflationary than financing these costs out of general revenue. This is because, while monetizing the costs increases the inflation tax rate, higher levels of general taxation reduce savings, deposits, bank reserves, and the inflation tax base. Increasing the inflation tax rate obviously raises inflation, but so does an erosion of the inflation tax base. We also find that low deposit insurance premia or low reserve requirements may not be associated with a high rate of bank failure.Received: 2 January 2002, Revised: 1 March 2003JEL Classification Numbers: D5, E5, G1.B. D. Smith: Sadly, our co-author, colleague and dear friend, Bruce D. Smith, died on July 9, 2002.     

关于建立中国存款保险制度的构想

存款保险制度是市场经济国家为了保护存款人利益 ,维护金融稳定 ,加强对存款类金融机构的监管而建立的一种保险制度。中国目前已基本具备建立存款保险制度的条件。随着中国成为WTO的正式成员 ,建立这种制度的需求日益迫切。本文从发达市场经济国家建立存款保险制度的运行情况和相互比较入手 ,分析了中国建立存款保险制度已具备的若干条件和必须注意的几个问题 ,并就建立中国的存款保险制度提出了建设性方案     

The Political Economy of Deposit Insurance

This paper uses a political economy framework to analyze cross-country differences in deposit insurance coverage. It finds supporting evidence of the significance of private interest theories in explaining coverage of deposit insurance. Deposit insurance coverage is significantly higher in countries where poorly capitalized banks dominate the market and in countries where depositors are poorly educated. The analysis does not find that coverage is significantly related to political-institutional variables, such as the degree of democracy or restraints on the executive, or to proxies for the general level of institutional development, such as per capita income or property rights. These results provide evidence in support of the private interest view, according to which risky banks lobby for extensive coverage.     

How Islamic are Islamic banks? A non-linear assessment of Islamic rate – conventional rate relations

In this paper, we perform a non-linear assessment of Islamic rate – conventional rate relations for the case of Malaysia. Using monthly data covering the period January 1999 to November 2016, we find strong evidence supporting non-linear reactions of the Islamic investment rates to conventional rates in the long run and/or short-run for all matched maturities. More precisely, the Islamic investment rates exhibit faster upward movement (slower downward movement) in responses to conventional deposit rate increases (decreases). The asymmetric pricing behaviour of Islamic banks however tends to weaken as maturity lengthens. Accordingly, we infer that Islamic banks do not rigidly peg their investment deposit rates to conventional deposit rates as some have claimed in questioning the Islamicity of Islamic banks.     

Dual market competition and deposit rate setting in Islamic and conventional banks

This paper addresses the issue of competition in dual banking markets by analyzing the determinants of deposit rates in Islamic and conventional banks. Using a sample of 20 countries with dual banking systems over the 2000–2014 period, our results show significant differences in the drivers of Islamic and conventional banks' pricing behavior. Conventional banks with stronger market power set lower deposit rates but market power is not significant for Islamic banks. In predominantly Muslim environments, conventional banks set higher deposit rates and further higher when their market power is lower. Whereas conventional banks are influenced by the competitiveness of Islamic banks, Islamic banks are only affected by their peers in predominantly Muslim countries. Our findings have important implications regarding competition and bank stability in dual banking markets.     

Deposit insurance around the world: A comprehensive analysis and database

This paper provides a comprehensive, global database of deposit insurance arrangements as of 2013. We extend our earlier dataset by including recent adopters of deposit insurance and information on the use of government guarantees on banks’ assets and liabilities, including during the recent global financial crisis. We also create a Safety Net Index capturing the generosity of the deposit insurance scheme and government guarantees on banks’ balance sheets. The data show that deposit insurance has become more widespread and more extensive in coverage since the global financial crisis, which also triggered a temporary increase in the government protection of non-deposit liabilities and bank assets. In most cases, these guarantees have since been formally removed but coverage of deposit insurance remains above pre-crisis levels, raising concerns about implicit coverage and moral hazard going forward.     

Premium setting and bank behavior in a voluntary deposit insurance scheme

This study analyzes the effect of premium rates on banks’ incentives to join a deposit insurance scheme and their incentives to invest in risky projects under a voluntary deposit insurance scheme. We find that in order to maximize social welfare, the insurance agency must either set the premium rate to be low so as to attract all banks to join the insurance scheme, or not to have the deposit insurance at all. However, the low premium rate in the voluntary scheme does not balance the budget of the deposit insurance. We also show that in the compulsory deposit insurance scheme, however, it is possible to impose an optimal premium rate that can balance the insurance agency’s budget and achieve the highest social welfare. The results also present the dominance of the compulsory scheme over the voluntary scheme in terms of maximizing social welfare and balancing the budget.

央行和商业银行视角下存款准备金率的实证分析

本文分别从央行货币政策调控目标和商业银行对存款准备金率容忍度的视角出发,利用参数法和神经网络模型对存款准备金率进行实证分析。研究发现,央行近年来多次上调存款准备金率主要是为了对抗通货膨胀以及回收货币流动性。在不考虑银行容忍度下,参数模型给出的目标存款准备金率为23%,而在考虑了存款准备金率对银行的负面影响后,根据神经网络模型得出2011年上半年合理的存款准备金率应为21.34%,与当前21.5%的实际存款准备金率相符。说明央行在货币调控时考虑到了银行的容忍度,是符合宏观审慎性原则的。而模型的敏感性分析表明,未来存款准备金率仍旧存在上调的区间与上调的可能性。     

A positive analysis of deposit insurance provision: Regulatory competition among European Union countries

We consider the provision of deposit insurance as the outcome of a non-cooperative policy game between nations. Nations compete for deposits in order to protect their banking systems from the destabilizing impact of potential capital flight. Policies are chosen to attract depositors who optimally respond to the expected return to deposits, which depends on deposit insurance levels, systemic risk and transaction costs. We identify both defensive and beggar-thy-neighbour policies. The model sheds light on the European banking crisis of 2008 in which individual nations ratcheted up their deposit insurance levels.     

Financial safety nets: reconstructing and modelling a policymaking metaphor

This paper explains that financial safety nets exist because of difficulties in enforcing contracts and shows that elements of deposit-insurance schemes differ substantially across countries. It shows that differences in the design of financial safety nets correlate significantly with differences in the informational and contracting environments of individual countries and that a country's GDP per capita is correlated with proxies for a country's level of: (1) informational transparency, (2) contract enforcement and deterrent rights, and (3) accountability for safety net officials. The analysis portrays deposit insurance as a part of a country's larger safety net and contracting environment. This means that there is no universal method for preventing and resolving banking problems and that the structure of a country's safety net should evolve over time with changes in private and government regulators' capacity for valuing financial institutions, disciplining risk taking and resolving insolvency promptly, and for being held accountable for how well they perform these tasks.