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Volkswirtschaft - Open Access LMU - Teil 01/03 Podcast
Safety Net Design and Systemic Risk: New Empirical Evidence

Safety Net Design and Systemic Risk: New Empirical Evidence

Volkswirtschaft - Open Access LMU - Teil 01/03 vor 21 Jahren

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Recent econometric evidence has noticeably changed views on the
desirability and the appropriate design of explicit Deposit
Insurance Schemes (DIS). The purpose of this paper is to take a
second look at the data. After surveying recent empirical work and
providing a theoretical framework, we argue that existing studies
may suffer from a selection bias. Building on a new database on
explicit deposit insurance compiled by the author, we perform a
variety of semi-parametric and parametric tests to see whether and
how explicit deposit insurance (de)stabilizes banking systems. We
find that the evidence indeed suggests that a selection bias is
present. Controlling for this bias leads to a reassessment of
recent studies. In particular, making deposit insurance explicit
has a rather moderate and, if any, stabilizing effect on the
probability of experiencing a systemic crisis.