Home > Research > Publications & Outputs > Deposit insurance and bank risk-taking
View graph of relations

Deposit insurance and bank risk-taking: evidence from internal loan ratings

Research output: Contribution to journalJournal articlepeer-review

Published

Standard

Deposit insurance and bank risk-taking : evidence from internal loan ratings. / Ioannidou, Vasso P.; Penas, María Fabiana.

In: Journal of Financial Intermediation, Vol. 19, No. 1, 01.2010, p. 95-115.

Research output: Contribution to journalJournal articlepeer-review

Harvard

Ioannidou, VP & Penas, MF 2010, 'Deposit insurance and bank risk-taking: evidence from internal loan ratings', Journal of Financial Intermediation, vol. 19, no. 1, pp. 95-115. https://doi.org/10.1016/j.jfi.2009.01.002

APA

Vancouver

Author

Ioannidou, Vasso P. ; Penas, María Fabiana. / Deposit insurance and bank risk-taking : evidence from internal loan ratings. In: Journal of Financial Intermediation. 2010 ; Vol. 19, No. 1. pp. 95-115.

Bibtex

@article{b022763b1e1541379171826ad6941b61,
title = "Deposit insurance and bank risk-taking: evidence from internal loan ratings",
abstract = "We analyze the effect of deposit insurance on the risk-taking behavior of banks in the context of a quasi-natural experiment using detailed credit registry data. Using the case of an emerging economy, Bolivia, which introduced a deposit insurance system during the sample period, we compare the risk-taking behavior of banks before and after the introduction of this system. We find that in the post-deposit insurance period, banks are more likely to initiate riskier loans (i.e., loans with worse internal ratings at origination). These loans carry higher interest rates and are associated with worse ex-post performance (i.e., they have higher default and delinquency rates). Banks do not seem to compensate for the extra risk by increasing collateral requirements or decreasing loan maturities. We also find evidence that the increase in risk-taking is due to the decrease in market discipline from large depositors. Finally, differences between large (too-big-to-fail) and small banks diminished in the post-deposit insurance period.",
author = "Ioannidou, {Vasso P.} and Penas, {Mar{\'i}a Fabiana}",
year = "2010",
month = jan,
doi = "10.1016/j.jfi.2009.01.002",
language = "English",
volume = "19",
pages = "95--115",
journal = "Journal of Financial Intermediation",
issn = "1042-9573",
publisher = "Academic Press Inc.",
number = "1",

}

RIS

TY - JOUR

T1 - Deposit insurance and bank risk-taking

T2 - evidence from internal loan ratings

AU - Ioannidou, Vasso P.

AU - Penas, María Fabiana

PY - 2010/1

Y1 - 2010/1

N2 - We analyze the effect of deposit insurance on the risk-taking behavior of banks in the context of a quasi-natural experiment using detailed credit registry data. Using the case of an emerging economy, Bolivia, which introduced a deposit insurance system during the sample period, we compare the risk-taking behavior of banks before and after the introduction of this system. We find that in the post-deposit insurance period, banks are more likely to initiate riskier loans (i.e., loans with worse internal ratings at origination). These loans carry higher interest rates and are associated with worse ex-post performance (i.e., they have higher default and delinquency rates). Banks do not seem to compensate for the extra risk by increasing collateral requirements or decreasing loan maturities. We also find evidence that the increase in risk-taking is due to the decrease in market discipline from large depositors. Finally, differences between large (too-big-to-fail) and small banks diminished in the post-deposit insurance period.

AB - We analyze the effect of deposit insurance on the risk-taking behavior of banks in the context of a quasi-natural experiment using detailed credit registry data. Using the case of an emerging economy, Bolivia, which introduced a deposit insurance system during the sample period, we compare the risk-taking behavior of banks before and after the introduction of this system. We find that in the post-deposit insurance period, banks are more likely to initiate riskier loans (i.e., loans with worse internal ratings at origination). These loans carry higher interest rates and are associated with worse ex-post performance (i.e., they have higher default and delinquency rates). Banks do not seem to compensate for the extra risk by increasing collateral requirements or decreasing loan maturities. We also find evidence that the increase in risk-taking is due to the decrease in market discipline from large depositors. Finally, differences between large (too-big-to-fail) and small banks diminished in the post-deposit insurance period.

U2 - 10.1016/j.jfi.2009.01.002

DO - 10.1016/j.jfi.2009.01.002

M3 - Journal article

VL - 19

SP - 95

EP - 115

JO - Journal of Financial Intermediation

JF - Journal of Financial Intermediation

SN - 1042-9573

IS - 1

ER -