Prague Economic Papers 2018, 27(5):588-605 | DOI: 10.18267/j.pep.676

Determinants of Deposit Insurance Coverage

Yiming Chang1, Shangmei Zhao2, Haijun Yang3,*, Jiang He4, Fei Hu5
1 School of Economics and Management, Beihang University, Beijing, China (changyiming@buaa.edu.cn)
2 School of Economics and Management, Beihang University, Beijing, China; Institute of Economics and Business, Beihang University, Beijing, China (beihangzsm@163.com)
3 School of Economics and Management, Beihang University, Beijing, China; Beijing Advanced Innovation Center for Big Data and Brain Computing, Beihang University, Beijing, China; Institute of Economics and Business and Management, Beihang University, Beijing, China (navy@buaa.edu.cn)
4 School of Economics and Management, Beihang University, Beijing, China (hejiang686@163.com)
5 School of Economics and Management, Beihang University, Beijing, China (hufeijr@sina.com)

On a comprehensive duration data set covering 189 countries from 1960 to 2015, we employ a Heckman two-step selection model to investigate determinants of deposit insurance coverage. We find that macroeconomic status, bank structure and regulatory, political institution, legal system and deposit insurance design characteristics have a significant effect on deposit insurance coverage. Moreover, empirical results show that the impact factors are different between developing and developed countries, especially the design characteristics. Specifically, for developing countries, the scheme with the Foreign currency will support a higher coverage. And for developed countries, the Interbank deposits will lead to a lower coverage, but the No coinsurance shows the opposite effect. It is noteworthy that both the Payouts and Backstop from government influence the coverage setting conversely in different samples, which implies that there may be higher banks' risk-taking incentives in developing countries after setting up explicit deposit insurance system.

Keywords: deposit insurance coverage, political economics, private interest theory, public interest theory, Heckman two-step model
JEL classification: G21, G22

Accepted: April 17, 2018; Published: October 1, 2018  Show citation

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Chang, Y., Zhao, S., Yang, H., He, J., & Hu, F. (2018). Determinants of Deposit Insurance Coverage. Prague Economic Papers, 27(5), 588-605. doi: 10.18267/j.pep.676
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