1. bookVolume 8 (2019): Issue 3 (September 2019)
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
access type Open Access

An Empirical Investigation into the Effect of Explicit Deposit Insurance and Design on the Liability Structure of Banks

Published Online: 19 Sep 2019
Volume & Issue: Volume 8 (2019) - Issue 3 (September 2019)
Page range: 179 - 206
Received: 23 Apr 2018
Accepted: 06 Jul 2018
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
Abstract

This paper provides an insight into the behaviour of the liability side of bank balance sheet in response to explicit deposit insurance. It is an empirical investigation into the choice of a rational bank maximizing its bank value in terms of deposit and non-deposit liabilities after the implementation of explicit deposit insurance. The paper tests how banks' liabilities are affected because of the safety net and its design. Banks lower their leverage ratio as a response to the explicit deposit insurance. The paper finds evidence of depositor shifting funds between the types of deposits in the bank as a result of the explicit deposit insurance. It provides evidence of the importance of setting the right coverage in order to prevent the adverse effects that deposit insurance induces. It studies how the safety net design features affect the bank liability structure. The study finds that besides the explicit deposit insurance, the bank liability structure is affected by factors like tax expense, bank size, overheads, and dividend payout.

Keywords

JEL Classification

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