TY  - UNPD
A1  - Gropp, Reint
A1  - Vesala, Jukka
T1  - Deposit insurance and moral hazard: does the counterfactual matter?
T2  - Frankfurt am Main : European Central Bank, 2001
N2  - The paper analyses the relationship between deposit insurance, debt-holder monitoring, bank charter values, and risk taking for European banks. Utilising cross-sectional and time series variation in the existence of deposit insurance schemes in the EU, we find that the establishment of explicit deposit insurance significantly reduces the risk taking of banks. This finding stands in contrast to most of the previous empirical literature. It supports the hypothesis that in the absence of deposit insurance, European banking systems have been characterised by strong implicit insurance operating through the expectation of public intervention at times of distress. Hence the introduction of an explicit system may imply a de facto reduction in the scope of the safety net. This finding provides a new perspective on the effects of deposit insurance on risk taking. Unless the absence of any safety net is credible, the introduction of deposit insurance serves to explicitly limit the safety net and, hence, moral hazard. We also test further hypotheses regarding the interaction between deposit insurance and monitoring, charter values and "too-big-to-fail." We find that banks with lower charter values and more subordinated debt reduce risk taking more after the introduction of explicit deposit insurance, in support of the notion that charter values and subordinated debt may mitigate moral hazard. Finally, large banks (as measured in relation to the banking system as a whole) do not change their risk taking in response to the introduction of deposit insurance, which suggests that the introduction of explicit deposit insurance does not mitigate "too-big-to-fail" problems.
T3  - European Central Bank: Working paper series - 47 
KW  - Europäische Union
KW  - Einlagensicherung
KW  - Einlagensicherungsfonds
KW  - Deposit Insurance
KW  - Moral Hazard
KW  - Banking
KW  - Risk
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/33329
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-333291
UR  - https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp047.pdf
SN  - 1725-2806
N1  - © European Central Bank, 2001. All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. The views expressed in this paper do not necessarily reflect those of the European Central Bank.
PB  - European Central Bank
CY  - Frankfurt am Main
ER  -