Skip to main content
Log in

The Payouts Choice for Deposit Insurance System

  • Published:
Journal of Systems Science and Complexity Aims and scope Submit manuscript

Abstract

Entropy balancing is introduced to assess the deposit insurance design characteristics in this paper. Applying an extensive duration data including 141 countries from 1960 to 2015, the authors employ the entropy balancing method to simulate the data structure under the implicit deposit insurance system. Then the paper adopts an endogenous treatment effects model and a Heckman two-step selection model to examine payouts choice of the deposit insurance. It is found that entropy balancing can calibrate unit weights and reweight treatment and control groups by a maximum entropy scheme. Thus, a possibly given conditions will be satisfied and information concerning sample moments will be integrated. The results show clearly that different payouts choice and the corresponding coverage setting can effectively reduce the moral hazards that may result from the introduction of a deposit insurance scheme. When the Payouts is Per Depositor Account or Per Depositor, the banks’ moral hazard is higher. However, the payment method of Per Depositor Per Institution can effectively restrain the banks’ risk-taking activities.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. Diamond D W and Dybvig P H, Bank runs, deposit insurance, and liquidity, J. Polit. Econ, 1983, 91(3): 401–419.

    Article  Google Scholar 

  2. Demirgüç-Kunt A, Kane E J, and Laeven L, Deposit insurance design and implementation: Policy lessons from research and practice, The World Bank Policy Research Working Papers, No. 3969, 2006.

  3. Barth J R, Caprio Jr G, and Levine R, Bank regulation and supervision: What works best?, J. Finan. Intermediation, 2004, 13(2): 205–248.

    Article  Google Scholar 

  4. Angkinand A and Wihlborg C, Deposit insurance coverage, ownership, and banks’ risk-taking in emerging markets, J. Int. Money. Finance, 2010, 29(2): 252–274.

    Article  Google Scholar 

  5. Watson S K and Elliot M, Entropy balancing: A maximum-entropy reweighting scheme to adjust for coverage error, Qual Quant., 2016, 50(4): 1781–1797.

    Article  Google Scholar 

  6. Demirgüç-Kunt A, Karacaovali B, and Laeven L, Deposit insurance around the world: A comprehensive database, The World Bank Policy Research Working Paper, No. 3628, 2005.

  7. Demirgüç-Kunt A, Kane E J, and Laeven L, Deposit Insurance Database No. WP-14118, 2014.

  8. Kroszner R S and Strahan P E, What drives deregulation? Economics and politics of the relaxation of bank branching restrictions, Q. J Econ., 1999, 114(4): 1437–1467.

    Article  Google Scholar 

  9. Demirgüç-Kunt A, Kane E J, and Laeven L, Determinants of deposit-insurance adoption and design, J. Financ. Intermediation, 2008, 17(3): 407–438.

    Article  Google Scholar 

  10. Shy O, Stenbacka R, and Yankov V, Limited deposit insurance coverage and bank competition, J. Bank. Financ., 2016, 71(1): 95–108.

    Article  Google Scholar 

  11. Ho D E, Imai K, King G, et al., Matching as nonparametric preprocessing for reducing model dependence in parametric causal inference, Polit Anal., 2007, 15(3): 199–236.

    Article  Google Scholar 

  12. Sekhon J S, Opiates for the matches: Matching methods for causal inference, Annu. Rev. Polit. Sci., 2009, 12(1): 487–508.

    Article  Google Scholar 

  13. Curto-Grau M, Voters’ responsiveness to public employment policies, Pub. Choice, 2017, 170(1): 143–169.

    Article  Google Scholar 

  14. Abadie A and Imbens G W, Simple and bias-corrected matching estimators for average treatment effects, National Bureau of Economic Research Technical Working Paper Series, No. 283, 2002.

  15. Diamond A and Sekhon J S, Genetic matching for estimating causal effects: A general multi-variate matching method for achieving balance in observational studies, Rev. Econ. Stat., 2012, 95(3): 932–945.

    Article  Google Scholar 

  16. Iacus S M, King G, and Porro G, Causal inference without balance checking: Coarsened exact matching, Polit. Anal., 2012, 20(1): 1–24.

    Article  Google Scholar 

  17. Hainmueller J, Entropy balancing for causal effects: A multivariate re observational studies, Polit. Anal., 2012, 20(1): 25–46.

    Article  Google Scholar 

  18. Hirano K, Imbens G W, and Ridder G, Efficient estimation of average treatment effects using the estimated propensity score, Econometrica, 2003, 71(4): 1161–1189.

    Article  MathSciNet  Google Scholar 

  19. Zhi-Quan L and Wei Y, An introduction to convex optimization for communications and signal processing, IEEE J. Select. Areas.Communicat., 2006, 24(8): 1426–1438.

    Article  Google Scholar 

  20. Aiyagari S R, Uninsured idiosyncratic risk and aggregate saving, Q. J. Econ., 1994, 109(3): 659–684.

    Article  Google Scholar 

  21. Saunders A and Schumacher L, The determinants of bank interest rate margins: An international study, J. Int. Money. Finance, 2000, 19(6): 813–832.

    Article  Google Scholar 

  22. Liu X, Zhang W, Xiong X, et al., Credit rationing and the simulation of bank-small and medium sized firm artificial credit market, Journal of Systems Science &ampl Complexity, 2016, 29(4): 991–1017.

    Article  MathSciNet  Google Scholar 

  23. Jayaratne J and Strahan P E, The finance-growth nexus: Evidence from bank branch deregulation, Q. J. Econ., 1996, 111(3): 639–670.

    Article  Google Scholar 

  24. Barth J R, Jr G C, and Levine R, Bank regulation and supervision in 180 countries from 1999 to 2011, J. Finan. Econ. Pol., 2013, 5(2): 111–219.

    Article  Google Scholar 

  25. Li J, Liang C, Zhu X, et al., Risk contagion in Chinese banking industry: A transfer entropy-based analysis, Entropy, 2013, 15(12): 5550–5561.

    Google Scholar 

  26. Laeven L, The political economy of deposit insurance, J. Financ. Serv. Res., 2004, 26(3): 201–224.

    Article  Google Scholar 

  27. Deb P and Trivedi P K, Maximum simulated likelihood estimation of a negative binomial regression model with multinomial endogenous treatment, Stata. J., 2006, 6(2): 246–255.

    Article  Google Scholar 

  28. Maddala G S, Limited-Dependent and Qualitative Variables in Econometrics, Cambridge University Press, New York, 1986.

    MATH  Google Scholar 

  29. Greene W H, Econometric Analysis, Prentice Hall, Upper Saddle River, New Jersey, 2012.

    Google Scholar 

  30. Heckman J J, Sample selection bias as a specification error, Econometrica, 1979, 47(1): 153–161.

    Article  MathSciNet  Google Scholar 

  31. Belsley D A, A guide to using the collinearity diagnostics, Computational Econ., 1991, 4(1): 33–50.

    MathSciNet  MATH  Google Scholar 

  32. Merton R C, An analytic derivation of the cost of deposit insurance and loan guarantees: An application of modern option pricing theory, J. Bank. Financ., 1977, 1(1): 3–11.

    Article  Google Scholar 

  33. Greene W H, Sample selection bias as a specification error: A comment, Econometrica, 1981, 49(3): 795–798.

    Article  MathSciNet  Google Scholar 

  34. Demirgüç-Kunt A and Kane E J, Deposit insurance around the globe: Where does it work?, J. Econ. Perspect., 2002, 16(2): 175–195.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Shangmei Zhao.

Additional information

This research was supported by the National Natural Science Foundation of China under Grant Nos. 71373017 and 70973007.

This paper was recommended for publication by Editor WANG Shouyang.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Chang, Y., Zhao, S. & Hu, F. The Payouts Choice for Deposit Insurance System. J Syst Sci Complex 32, 1404–1425 (2019). https://doi.org/10.1007/s11424-019-7419-6

Download citation

  • Received:

  • Revised:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11424-019-7419-6

Keywords

Navigation