The link between deposit insurance And banks’ risk taking

The link between deposit insurance And banks’ risk taking

Göçmen , Yağcilar Gamze

Deposit insurance is an insurance system that guarantees bank deposits of people in case of bank failure or a run on the bank. The system is first introduced in 1933 for Turkey and taken its final form with regulations in 2004. Deposit insurance in Turkey is handled by Savings Deposit Fund Insurance and according to the latest regulations compensation limit covers a maximum of 50,000 TL per depositor per member institution. Deposit insurance system which is adopted in most countries has various advantages for both individuals and banks. However academic debates commonly focus on whether this system encourages banks to take excessive risk. In this context the purpose of this study is to analyze the link between deposit insurance and bank 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 2004-2010. Keywords: Deposit insurance, bank risk taking, panel data regression.

Conference or Workshop Item
PeerReviewed

2012-05-31

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