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- Title
Deposit Insurance and Bank Risk: Does Dual Banking Supervision Matter?
- Authors
Mumtaz, Raheel; Jadoon, Imran Abbas; Rasheed, Abdul; Mumtaz, Adeel
- Abstract
The implementation of explicit deposit insurance rises the moral hazard of bank's risk-taking triggered by the reduction in depositor's monitoring. In the light of economic theory, we examine that whether to allocate additional supervisory authority to the deposit insurer in the presence of a banking supervisor who is expected to decrease the risk taking of banks. We employ 1,856 banks from eighty-seven countries from 2002-2015. Hierarchical Linear Models (HLM) are employed and it reveals that the provision of supervisory authority to a deposit insurer reduces the risk taking activities of banks. In addition, the deposit insurer's supervision enhances the bank's soundness in non-crisis effected countries. Moreover, allocating the additional supervisory powers to deposit insurer appears as the additional force which mitigates the bank's risk-taking in the presence of financial supervisory authority. However, this effect is bigger in non-crisis-affected countries. So, the allotment of supplementary supervisory powers to the deposit insurer enhances the investors and depositors' assurance on the financial stability.
- Subjects
DEPOSIT insurance; MULTILEVEL models; BANKING industry
- Publication
Pakistan Journal of Social Sciences (PJSS), 2021, Vol 41, Issue 1, p13
- ISSN
2074-2061
- Publication type
Article