Journal of Financial Services Research

, Volume 26, Issue 3, pp 201–224 | Cite as

The Political Economy of Deposit Insurance

  • Luc Laeven

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.

Deposit insurance political economy. 

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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Luc Laeven
    • 1
  1. 1.World BankWashington DCUSA

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