Safety Net Design and Systemic Risk: New Empirical Evidence

Ulrich Klüh
Authors registered in the RePEc Author Service: Ulrich Helmut Klueh

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: Recent econometric evidence has noticeably changed views on the desirability and the appropriate design of explicit Deposit Insurance Schemes (DIS). The purpose of this paper is to take a second look at the data. After surveying recent empirical work and providing a theoretical framework, we argue that existing studies may suffer from a selection bias. Building on a new database on explicit deposit insurance compiled by the author, we perform a variety of semi-parametric and parametric tests to see whether and how explicit deposit insurance (de)stabilizes banking systems. We find that the evidence indeed suggests that a selection bias is present. Controlling for this bias leads to a reassessment of recent studies. In particular, making deposit insurance explicit has a rather moderate and, if any, stabilizing effect on the probability of experiencing a systemic crisis.

Keywords: Deposit Insurance; Banking Fragility; Systemic Risk (search for similar items in EconPapers)
JEL-codes: C14 G21 G28 (search for similar items in EconPapers)
Date: 2005-06
New Economics Papers: this item is included in nep-fin
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenec:662

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