Department of Economics and Business Economics

Jan Bartholdy

Deposit Insurance and Risk Shifting in a Strong Regulatory Environment

Research output: Contribution to conferencePaperResearchpeer-review

This study provides empirical evidence on the moral hazard implications of introducing deposit insurance into a strong regulatory environment. Denmark offers a unique setting because commercial banks and savings banks have different ownership structures, but are subject to the same set of regulations. The ownership structure in savings banks implies that they have no incentive to increase risk after the implementation of a deposit insurance scheme whereas commercial banks have. Also, at the time of introduction, Denmark had high capital requirements and a strict closure policy.
Using a difference-in-difference framework we show that commercial banks did not increase their risk compared to savings banks when deposit insurance was introduced. The results also hold for large commercial banks, indicating that the systemic risk did not increase either. Thus for a system with high capital requirements and a strict closure policy, we reject the hypothesis that deposit insurance induces moral hazard into the system.
Original languageEnglish
Publication year2015
Number of pages42
Publication statusPublished - 2015
EventWorld Finance & Banking Symposium - Hanoi, Viet Nam
Duration: 17 Dec 2015 → …


ConferenceWorld Finance & Banking Symposium
CountryViet Nam
Period17/12/2015 → …

    Research areas

  • Deposit insurance, Moral hazard, difference-in-difference

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