BibTex RIS Cite

EFFECTS OF DEPOSIT INSURANCE SYSTEM ON BANKS’ RISK TAKING INCENTIVES IN TURKEY

Year 2014, Volume: 3 Issue: 4, 0 - 0, 08.11.2015

Abstract

 Deposit insurance is an insurance system that guarantees bank deposits of people in case of bank failure or a run on the bank. Deposit insurance in Turkey is handled by Savings Deposit Fund Insurance and according to the latest regulations compensation limit covers a maximum of 100,000 TL per depositor per member institution. The system is adopted in most countries and has various advantages for both individuals and banks. However academic debates commonly focus on whether this system encourages banks to take excessive risks. In this context the purpose of this study is to analyze the link between deposit insurance and banks’ risk taking. For this purpose, a panel regression analysis is applied to the ratio of deposits under insurance to total deposits and basic risk measures of banks operating in Turkey during 2002Q4-2013Q1. Results suggest that, higher insured deposit ratios are related to higher credit risk and interest rate risk but lower liquidity risk and overall default risk.

References

  • Abdullah, S.A.S. and R. Ahmad, (2012), “Deposit Insurance System: An Exposition
  • for the Islamic Banks in Malaysia”, International Journal of Social Sciences and
  • Humanity Studies, Vol. 4, No. 2, pp. 427-439. 
  • Angkinand, Apanard, C. and Wihlborg, (2010), “Deposit Insurance Coverage,
  • Ownership and Banks’ Risk Taking in Emerging Markets”, Journal of International
  • Money and Finance, Vol. 29, 252-274. 
  • Anginer, D, Demirgüç-Kunt, A. and Zhu, M. (2014), “How Does Deposit Insurance
  • Affect Bank Risk? Evidence from the Recent Crisis”, Journal of Banking and
  • Finance, http://dx.doi.org/10.1016/j.jbankfin.2013.09.013. 
  • Aydin, N., Başar M. and Coşkun, M., (2006), Bankacılık Uygulamaları, Anadolu
  • Üniversitesi Ya. No. 1711, Eskişehir. 
  • Bartholdy, Jan, Glenn W. Boyle and R.D. Stover, (2003), “Deposit Insurance and
  • the Risk Premium in Bank Deposit Rates”, Journal of Banking and Finance, Vol. 27, 699-717. 
  • Batisse, C., (2001), “Externalities and Local Growth: A Panel Data Analysis Applied
  • to Chinese Provinces”, International Conference of the Chinese Economy, Has
  • China Become a Market Economy?, May 17-18 2001, France. 
  • Beck, T., (2008), “Bank Competition and Financial Stability: Friends or Foes?”,
  • World Bank Policy Reseach Working Paper, No. 4656, pp. 1-30. 
  • Bossone, B., (2000), “What Makes Banks Special? A Study of Banking, Finance and
  • Economic Development”, World Bank Working Papers, No. 2408, pp.1-66. 
  • Boyd, J.H and De Nicola, G, (2008), “The Theory of Bank Risk Taking and
  • Competition Revisited”, the Journal of Finance, Vol. 60, No. 3, 1329-1343.
  • Buttonwood’s Notebook, “Eurozone Crisis: What Does a Guarantee Mean?”, The
  • Economist, Mar 19th, 2013,
  • www.economist.com/blogs/buttonwood/2013/03/euro-zone-crisis-1 
  • Carapella, F. and G. Di Giorgio, (2004), “Deposit Insurance, Institutions and Bank
  • Interest Rates”, Transition Studies Review, Vol. 11, no. 3, 77-92. 
  • DeLong, G. and Sauncers, A. (2011), “Did The Introduction Of Fixed-Rate Federal
  • Deposit Insurance Increase Long-Term Bank Risk-Taking?”, Journal of Financial
  • Stability, Vol. 7, pp. 19-25. 
  • Demirgüç-Kunt, A. and E. Detragiache, (1999), “Does Deposit Insurance Increase
  • Banking System Stability? An Empirical Investigation”, World Bank Policy
  • Research Working Paper, No. 2247. 
  • Diamond, D.W. and P.H. Dybvig, (1983), “Bank Runs, Deposit Insurance and
  • Liquidity”, Journal of Political Economy, Vol. 91, No. 3, pp. 401-419. 
  • Enkhbold, E. and Otgonshar, B., (2013), “The Effect of Deposit Insurance on Risk
  • Taking in Asian Banks”, Asian Journal of Finance & Accounting, Vol. 5, No. 1, pp. 104-126.
  • Gonzalez, F., (2005), “Bank Regulation and Risk-Taking Incentives: An
  • International Comparison of Bank Risk”, Journal of Banking & Finance, Vol. 29, pp. 1153-1184. 
  • Gropp, R. and Vesela, J. (2004), “Deposit Insurance, Moral Hazard and Market
  • Monitoring”, European Central Bank, Working Paper Series, No. 302. 
  • Gueyie, J.P. and Lai, V.S. (2003), “ Bank Moral Hazard and the Introduction of
  • Official Deposit Insurance in Canada”, International Review of Economics and
  • Finance, Vol. 12, pp. 247-273. 
  • Huang, D.F. (2005), “The Predictive Power of Capital Adequacy Ratios on Bank
  • Risk”, Journal of Contemporary Accounting, Vol. 6, no. 1, pp. 1-22,
  • http://www2.tku.edu.tw/~tmax/file/account_72/v6n1-1.pdf. 
  • Ioannidou, V.P. and Penas, M.F. (2010), “Deposit Insurance and Bank Risk Taking:
  • Evidence from Internal Loan Ratings”, Journal of Financial Intermediation, Vol. 19, 95-115. 
  • Keeley, M.C., (1990), “Deposit Insurance, Risk and Market Power in Banking”, The
  • American Economic Review, Vol. 80, No. 5, 1183-1200.
  • Le, M. (2013), “Deposit Insurance Adoption and Bank Risk-Taking: the Role of
  • Leverage”, Paris School of Economics, Working Papers, No. 2013-41. 
  • Leaven, L. (2002), “Bank Risk and Deposit Insurance”, The World Bank Economic
  • Review, Vol. 16, No. 1, pp. 109-137. 
  • Leaven, L. and Levine, R. (2008), “Bank Governance, Regulation and Risk Taking”,
  • NBER Working Paper Series, No: 14113. 
  • Ng, T.H., Lim, Y.S. and Tan N. L., (2010), “Deposit Insurance and Bank Risks: The
  • Case of Malaysia”, European Journal of Economics, Finance and Administrative
  • Sciences, Issue 18, 19-27.
  • Ninimaki, J-P. (2000), “The Effects of Competition on Banks’ Risk Taking with and
  • without Deposit Insurance”, Bank of Finland Discussion Papers, No. 21. 
  • Pennacchi, G. (2006), “Deposit Insurance, Bank Regulation and financial System
  • Risks”, Journal of Monetary Economics, Vol. 53, pp. 1-30. 
  • Silva, N. (2008), “Deposit Insurance, Moral Hazard and The Risk of Runs”, Central
  • Bank of Chile Working Papers No. 478.
  • Şıklar, İ. (2004), Finansal Ekonomi, Anadolu Üniversitesi Ya., No. 1588, Eskişehir. 
  • Yoon, K.H. and Jun, Y.S. (2012), “Deposit Insurance Increase and Risk Taking by
  • Banks”, International Research Journal of Finance and Economics, Issue 91. 
  • Wheelock, D.C. and Wilson, P.W. (1994), “Can Deposit Insurance Increase the Risk
  • of Bank Failure? Some Historical Evidence”, Federal Reserve Bank of St.Louis
  • Review, Vol. 76, No. 3, May/June 1994, pp. 57-71. 
  • Wu, R-J, and Chi, C-P, (2006), “Competition, Deposit Insurance and Bank Risk
  • Taking”, http://centerforpbbefr.rutgers.edu/2006/Paper%202006/16AS02-056
  • Chien-Ping%20Chi.pdf.
Year 2014, Volume: 3 Issue: 4, 0 - 0, 08.11.2015

Abstract

References

  • Abdullah, S.A.S. and R. Ahmad, (2012), “Deposit Insurance System: An Exposition
  • for the Islamic Banks in Malaysia”, International Journal of Social Sciences and
  • Humanity Studies, Vol. 4, No. 2, pp. 427-439. 
  • Angkinand, Apanard, C. and Wihlborg, (2010), “Deposit Insurance Coverage,
  • Ownership and Banks’ Risk Taking in Emerging Markets”, Journal of International
  • Money and Finance, Vol. 29, 252-274. 
  • Anginer, D, Demirgüç-Kunt, A. and Zhu, M. (2014), “How Does Deposit Insurance
  • Affect Bank Risk? Evidence from the Recent Crisis”, Journal of Banking and
  • Finance, http://dx.doi.org/10.1016/j.jbankfin.2013.09.013. 
  • Aydin, N., Başar M. and Coşkun, M., (2006), Bankacılık Uygulamaları, Anadolu
  • Üniversitesi Ya. No. 1711, Eskişehir. 
  • Bartholdy, Jan, Glenn W. Boyle and R.D. Stover, (2003), “Deposit Insurance and
  • the Risk Premium in Bank Deposit Rates”, Journal of Banking and Finance, Vol. 27, 699-717. 
  • Batisse, C., (2001), “Externalities and Local Growth: A Panel Data Analysis Applied
  • to Chinese Provinces”, International Conference of the Chinese Economy, Has
  • China Become a Market Economy?, May 17-18 2001, France. 
  • Beck, T., (2008), “Bank Competition and Financial Stability: Friends or Foes?”,
  • World Bank Policy Reseach Working Paper, No. 4656, pp. 1-30. 
  • Bossone, B., (2000), “What Makes Banks Special? A Study of Banking, Finance and
  • Economic Development”, World Bank Working Papers, No. 2408, pp.1-66. 
  • Boyd, J.H and De Nicola, G, (2008), “The Theory of Bank Risk Taking and
  • Competition Revisited”, the Journal of Finance, Vol. 60, No. 3, 1329-1343.
  • Buttonwood’s Notebook, “Eurozone Crisis: What Does a Guarantee Mean?”, The
  • Economist, Mar 19th, 2013,
  • www.economist.com/blogs/buttonwood/2013/03/euro-zone-crisis-1 
  • Carapella, F. and G. Di Giorgio, (2004), “Deposit Insurance, Institutions and Bank
  • Interest Rates”, Transition Studies Review, Vol. 11, no. 3, 77-92. 
  • DeLong, G. and Sauncers, A. (2011), “Did The Introduction Of Fixed-Rate Federal
  • Deposit Insurance Increase Long-Term Bank Risk-Taking?”, Journal of Financial
  • Stability, Vol. 7, pp. 19-25. 
  • Demirgüç-Kunt, A. and E. Detragiache, (1999), “Does Deposit Insurance Increase
  • Banking System Stability? An Empirical Investigation”, World Bank Policy
  • Research Working Paper, No. 2247. 
  • Diamond, D.W. and P.H. Dybvig, (1983), “Bank Runs, Deposit Insurance and
  • Liquidity”, Journal of Political Economy, Vol. 91, No. 3, pp. 401-419. 
  • Enkhbold, E. and Otgonshar, B., (2013), “The Effect of Deposit Insurance on Risk
  • Taking in Asian Banks”, Asian Journal of Finance & Accounting, Vol. 5, No. 1, pp. 104-126.
  • Gonzalez, F., (2005), “Bank Regulation and Risk-Taking Incentives: An
  • International Comparison of Bank Risk”, Journal of Banking & Finance, Vol. 29, pp. 1153-1184. 
  • Gropp, R. and Vesela, J. (2004), “Deposit Insurance, Moral Hazard and Market
  • Monitoring”, European Central Bank, Working Paper Series, No. 302. 
  • Gueyie, J.P. and Lai, V.S. (2003), “ Bank Moral Hazard and the Introduction of
  • Official Deposit Insurance in Canada”, International Review of Economics and
  • Finance, Vol. 12, pp. 247-273. 
  • Huang, D.F. (2005), “The Predictive Power of Capital Adequacy Ratios on Bank
  • Risk”, Journal of Contemporary Accounting, Vol. 6, no. 1, pp. 1-22,
  • http://www2.tku.edu.tw/~tmax/file/account_72/v6n1-1.pdf. 
  • Ioannidou, V.P. and Penas, M.F. (2010), “Deposit Insurance and Bank Risk Taking:
  • Evidence from Internal Loan Ratings”, Journal of Financial Intermediation, Vol. 19, 95-115. 
  • Keeley, M.C., (1990), “Deposit Insurance, Risk and Market Power in Banking”, The
  • American Economic Review, Vol. 80, No. 5, 1183-1200.
  • Le, M. (2013), “Deposit Insurance Adoption and Bank Risk-Taking: the Role of
  • Leverage”, Paris School of Economics, Working Papers, No. 2013-41. 
  • Leaven, L. (2002), “Bank Risk and Deposit Insurance”, The World Bank Economic
  • Review, Vol. 16, No. 1, pp. 109-137. 
  • Leaven, L. and Levine, R. (2008), “Bank Governance, Regulation and Risk Taking”,
  • NBER Working Paper Series, No: 14113. 
  • Ng, T.H., Lim, Y.S. and Tan N. L., (2010), “Deposit Insurance and Bank Risks: The
  • Case of Malaysia”, European Journal of Economics, Finance and Administrative
  • Sciences, Issue 18, 19-27.
  • Ninimaki, J-P. (2000), “The Effects of Competition on Banks’ Risk Taking with and
  • without Deposit Insurance”, Bank of Finland Discussion Papers, No. 21. 
  • Pennacchi, G. (2006), “Deposit Insurance, Bank Regulation and financial System
  • Risks”, Journal of Monetary Economics, Vol. 53, pp. 1-30. 
  • Silva, N. (2008), “Deposit Insurance, Moral Hazard and The Risk of Runs”, Central
  • Bank of Chile Working Papers No. 478.
  • Şıklar, İ. (2004), Finansal Ekonomi, Anadolu Üniversitesi Ya., No. 1588, Eskişehir. 
  • Yoon, K.H. and Jun, Y.S. (2012), “Deposit Insurance Increase and Risk Taking by
  • Banks”, International Research Journal of Finance and Economics, Issue 91. 
  • Wheelock, D.C. and Wilson, P.W. (1994), “Can Deposit Insurance Increase the Risk
  • of Bank Failure? Some Historical Evidence”, Federal Reserve Bank of St.Louis
  • Review, Vol. 76, No. 3, May/June 1994, pp. 57-71. 
  • Wu, R-J, and Chi, C-P, (2006), “Competition, Deposit Insurance and Bank Risk
  • Taking”, http://centerforpbbefr.rutgers.edu/2006/Paper%202006/16AS02-056
  • Chien-Ping%20Chi.pdf.
There are 75 citations in total.

Details

Journal Section Articles
Authors

Gamze Gocmen Yagcilar

Publication Date November 8, 2015
Published in Issue Year 2014 Volume: 3 Issue: 4

Cite

APA Yagcilar, G. G. (2015). EFFECTS OF DEPOSIT INSURANCE SYSTEM ON BANKS’ RISK TAKING INCENTIVES IN TURKEY. Journal of Business Economics and Finance, 3(4).

Journal of Business, Economics and Finance (JBEF) is a scientific, academic, double blind peer-reviewed, quarterly and open-access journal. The publication language is English. The journal publishes four issues a year. The issuing months are March, June, September and December. The journal aims to provide a research source for all practitioners, policy makers and researchers working in the areas of business, economics and finance. The Editor of JBEF invites all manuscripts that that cover theoretical and/or applied researches on topics related to the interest areas of the Journal. JBEF charges no submission or publication fee.



Ethics Policy - JBEF applies the standards of Committee on Publication Ethics (COPE). JBEF is committed to the academic community ensuring ethics and quality of manuscripts in publications. Plagiarism is strictly forbidden and the manuscripts found to be plagiarized will not be accepted or if published will be removed from the publication. Authors must certify that their manuscripts are their original work. Plagiarism, duplicate, data fabrication and redundant publications are forbidden. The manuscripts are subject to plagiarism check by iThenticate or similar. All manuscript submissions must provide a similarity report (up to 15% excluding quotes, bibliography, abstract, method).


Open Access - All research articles published in PressAcademia Journals are fully open access; immediately freely available to read, download and share. Articles are published under the terms of a Creative Commons license which permits use, distribution and reproduction in any medium, provided the original work is properly cited. Open access is a property of individual works, not necessarily journals or publishers. Community standards, rather than copyright law, will continue to provide the mechanism for enforcement of proper attribution and responsible use of the published work, as they do now.