Exploring Bank Stability

This seminar has been organised by the Accounting and Finance research group.

About the speaker

Our guest speaker is Marian Fares, PhD student at Newcastle University Business School.

Research title

 "Conditional and Unconditional Effects of Deposit Insurance Scheme on Bank Stability"

Abstract

The Deposit Insurance Scheme (DIS) has been a fundamental component of financial safety nets, aimed at maintaining depositor confidence and mitigating bank failures. However, its impact on bank stability remains controversial.

This paper addresses this issue by examining the conditional and unconditional effects of DIS on bank stability, utilizing a comprehensive dataset of 81 countries spanning from 1970 to 2020. The study employs a panel regression model to investigate how the DIS interacts with other factors such as bank competition, supervision, and financial liberalization, which have varying effects on bank stability.

Drawing from theoretical frameworks and empirical evidence, the paper evaluates competing perspectives on the relationship between DIS and bank stability, considering moral hazard issues and the role of other determinants of bank fragility. Moreover, it explores how these factors act as channels through which DIS influences bank stability, offering insights crucial for policymakers and regulators.

The study employs threshold models to identify optimal levels of DIS coverage and other drivers, shedding light on the complex nonlinearities within these relationships. By advancing the understanding of the DIS-stability nexus and providing empirical evidence, this paper contributes to the literature and offers valuable implications for policy formulation in banking regulation and financial stability.