Do bank risk-taking, deposit insurance and financial heterogeneity change periodically with the financial crisis?

ABSTRACT

Financial heterogeneity generally refers to differences in the financial environment, which will affect the efficiency and risk of a country’s financial market. This paper describes financial heterogeneity from three aspects: the difference of financial market structure, the difference of financial intervention level and the degree of financial openness, and studies the relationship between financial heterogeneity, deposit insurance coverage and bank risk-taking before and after the 2008 financial crisis, using panel data of 98 market countries. The results show that the nonlinear relationship between bank risk-taking and deposit insurance coverage. This research finds that estimated coefficients’ sign and significance of some variables, such as household saving rate, bank deposit loan spread, their interactions with deposit insurance coverage, and bank credit to bank deposits show cyclical characteristics cross periods.

KEYWORDS:

• Financial heterogeneity
• deposit insurance coverage
• bank risk-taking
• structural change
• financial crisis

JEL CLASSIFICATION:

• E44
• G21
• G22
• G28

Acknowledgments

The authors would like to thank the editor and anonymous reviewers for their valuable comments and helpful suggestions. .

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The work was supported by the supported by the the National Natural Science Foundation of China (No.71971008, No.62176005, No.91846303), National Key Research and Development Program of China (No. 2021ZD0111202), the Beijing Natural Science Foundation (No. 9222020), the PKU-Baidu Fund (Project 2020BD002), the PKU-Haier“Smart Home”Qingdao Joint Innovation Lab.