Working Paper: NBER ID: w24936
Authors: Charles W. Calomiris; Sophia Chen
Abstract: We construct a new measure of the changing generosity of deposit insurance for many countries, empirically model the international influences on the adoption and generosity of deposit insurance, and show that the expansion of deposit insurance generosity increased asset risk in banking systems. We consider three asset risk measures: higher loans-to-assets, a higher proportion of lending to households, and a higher proportion of mortgage lending. None of the observed increases in these indicators is offset by declines in banking system leverage. We show that increased asset risk explains at least part of the positive association between deposit insurance and the likelihood and severity of systemic banking crises.
Keywords: Deposit Insurance; Bank Risk; Systemic Crises; Mortgage Lending
JEL Codes: E32; F55; F65; G01; G18; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deposit Insurance Generosity (G28) | Asset Risk (G19) |
| Deposit Insurance Generosity (G28) | Loan-to-Assets Ratio (G32) |
| Deposit Insurance Generosity (G28) | Household and Mortgage Lending Proportions (G51) |
| Deposit Insurance Generosity (G28) | Debt-to-Assets Ratio (G32) |
| Asset Risk (G19) | Likelihood and Severity of Banking Crises (F65) |