Deposit insurance and banking stability

Abstract

Many countries provide extensive deposit insurance as a part of a safety net that promotes stability in the financial system. An unintended conequence of deposit insurance is that it reduces depositors’ incentives to supervise banks, leading to excessive risk-taking. The article discussed the relationship between deposit insurance, bank risks and systemic vulnerabilities before and during the Great Financial Crisis

Keywords

• financial system
• stability
• risk-taking
• deposit insurance
• bank risk