Market discipline and financial safety net design

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Home > Data & Research > Research > Author Profile > Report Details

Market discipline and financial safety net design, Volume 1

Author:	Demirguc-Kunt, Asl1; Huizinga, Harry;	Collection Title:	Policy, Research working paper ; no. WPS 2183
Date Stored:	1999/10/07	Document Date:	1999/09/30
Document Type:	Policy Research Working Paper	Language:	English
Major Sector:	Finance	Report Number:	WPS2183
Sub Sectors:	Other Finance	SubTopics:	Payment Systems & Infrastructure; Financial Crisis Management & Restructuring; Banks & Banking Reform; Insurance & Risk Mitigation; Financial Intermediation; Insurance Law
Volume No:	1

Summary: There has been little empirical work on the effectiveness of safety nets designed for banks, for lack of data on safety net design across countries. The authors examine cross-country data on bank-level interest expense and deposit growth for evidence of market discipline in individual countries. In addition, using cross-country information on deposit insurance systems, they investigate the impact of explicit deposit insurance (and its key features) on bank interest rates and market discipline. They find that: 1) Many countries retain some degree of market discipline, regardless of the type of safety net. 2) The existence of explicit deposit insurance lowers banks' interest expenses and makes interest payments less sensitive to bank risk factors, especially bank liquidity. 3) Higher explicit coverage, broader coverage, and the existence of an earmarked insurance fund increase required-deposit rates and reduce market discipline. 4) Private (especially joint) management of insurance schemes lowers deposit rates and improves market discipline.


Official Documents Official, scanned versions of documents (may include signatures, etc.)
File Type		Description	File Size (mb)

	PDF 52 pages	Official version*	3.64 (approx.)
	Text	Text version**


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File Type		Description	File Size (mb)

	PDF 44 pages	WPS2183	0.19

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