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The impact of deposit insurance on the risk-taking willingness of banks: evidence from US Banks in the post-crisis period
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A permanent increase in the maximum amount covered by the FDIC in the USin2010 following the financial crisis raised concerns that a larger safety net would foster moral hazard and risk taking among banks. Counterintuitively, this study finds a decreasing risk in ess of banks after the FDIC increase. This holds true for standalone bank risk and stock return volatility of publicly traded banks. Explicitly, the introduction of the higher coverage amount in creased the average bank’ sz- score and thus its distance from insolvency. However, this effect may also be caused by other regulations like higher capital ratio requirements and a more expansive monetary policy.
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Deposit insurance Global financial crisis Risk-taking willingness US Banks