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Deposit insurance scheme and banking crises: a special focus on less-developed countries

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Abstract

This study analyzes the effect of an explicit deposit insurance scheme (EDIS) on the probability of a banking crisis in a country while taking the country’s overall economic development into account. The panel data for the period of 1980–2003 include all the countries having the data on an EDIS. The major finding is that if the interaction between a country’s overall economic development and its use of an EDIS is not controlled for, the country’s use of the EDIS increases the probability of a banking crisis. This increase is greater the more inefficiently designed the EDIS is. However, once the interaction between the overall economic development and the use of the EDIS is controlled for, it is found that the EDIS itself is not a significant factor of a banking crisis. In that case, the less developed the country is that is using an EDIS, the higher the probability of a banking crisis.

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Authors and Affiliations

  1. Department of Economics, Simon Fraser University, 8888 University Drive, WMC 3602, Burnaby, BC, V5A 1S6, Canada

    Anichul Hoque Khan

  2. Department of Economics, Thompson Rivers University, 900 McGill Road, Kamloops, BC, V2C 5N3, Canada

    Hasnat Dewan

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  1. Anichul Hoque Khan
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  2. Hasnat Dewan
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Correspondence to Anichul Hoque Khan.

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Khan, A.H., Dewan, H. Deposit insurance scheme and banking crises: a special focus on less-developed countries. Empir Econ 41, 155–182 (2011). https://doi.org/10.1007/s00181-010-0438-8

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  • DOI: https://doi.org/10.1007/s00181-010-0438-8

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