perceived safety of deposits by accepting the administrative costs of supervising banks

and the consequences of any net reduction in market discipline. “Correct” pricing

through insurance premia could in principle eliminate risk shifting, but such pricing is

politically and administratively difficult, especially in developing countries. Leaven

(2001) extracts estimates of annual implicit subsidies to banks for a sample of 14

countries from market prices of bank stock. He finds that the cost of deposit insurance

is highly country-specific, being highest in countries with low per-capita GDP and poor

institutional environments. German banks take very low risks and accrue the smallest

gross subsidies from deposit insurance. This reinforces the conclusions reached by Beck

(2001) in his case study of German deposit insurance. Beck finds that private

management, mutual liability and the anti-bankruptcy bias curb risk-taking incentives at

German banks.

Such individual-bank data provide direct evidence of the way in which deposit

insurance design can affect bank risk-taking incentives. Although deposit insurance

displaces market discipline even in advanced countries, the net effect may be improved

by strong regulation and supervision. These findings reinforce the evidence on deposit

insurance and banking crises. Countries with poor contracting environments are most

likely to suffer adverse consequences from deposit insurance.

Some argue that in institutionally underdeveloped countries explicit deposit

insurance may have other advantages that offset its negative effects on market discipline

and systemic stability. Folkerts-Landau and Lindgren (1998) maintain that the principal

benefit of deposit insurance is to provide a risk-free asset to small savers. Critics of this

view point out that this benefit may be obtained without destabilization costs by issuing

assets such as postal savings or money market funds backed by government debt, or by insisting that banks issuing insured deposits could be constrained to remain “narrow” banks. A second and specifically evolutionary view maintains that in countries with underdeveloped institutions, deposit insurance may be expected to create a launching pad for improving the banking system so that it performs financial intermediation more efficiently.

References

Beck, Thorsten, 2001, “Deposit Insurance as a Private Club: The Case of Germany,”

Quarterly Review of Economic and Finance, forthcoming.

Baer, Herbert and Elijah Brewer, 1986, Uninsured deposits as a source of market

discipline: a new look, Quarterly Journal of Business and Economics 24, 3-20.

Ellis, David M. and Mark J. Flannery, 1992, Does the debt market assess large banks’

risk?, Journal of Monetary Economics 30, 481-502.

Flannery, Mark J., 1998, Using market information in prudential bank supervision: a

上一页  [1] [2] [3] [4] [5] 下一页