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The Political Economy of Deposit Insurance

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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Services Research Springer Journals

The Political Economy of Deposit Insurance

Journal of Financial Services Research , Volume 26 (3) – Oct 9, 2004

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References (38)

Publisher
Springer Journals
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Finance; Financial Services; Macroeconomics/Monetary Economics//Financial Economics
ISSN
0920-8550
eISSN
1573-0735
DOI
10.1023/B:FINA.0000040049.53563.e1
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

Journal of Financial Services ResearchSpringer Journals

Published: Oct 9, 2004

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