Systemic Risk, Bank Capital, and Deposit Insurance Around the World

66 Pages Posted: 21 May 2014 Last revised: 8 Oct 2014

See all articles by Denefa Bostandzic

Denefa Bostandzic

Heinrich Heine University Dusseldorf

Matthias Pelster

University of Duisburg-Essen - Mercator School of Management; european center for financial services (ecfs)

Gregor N. F. Weiss

University of Leipzig - Faculty of Economics and Management Science

Date Written: October 7, 2014

Abstract

We analyze the effect of bank capital, regulation and deposit insurance on the global systemic risk of international banks during the period of 1999-2012. Using a comprehensive panel of large global banks, we identify factors that influence the build-up of systemic risk worldwide across a large set of heterogeneous regulatory and supervisory schemes. We find that higher Tier 1 capital decreases both the exposure and contribution of individual banks to global systemic risk. We also show that deposit insurance schemes that require banks and depositors to bear more financial risk are associated with a more pronounced vulnerability and contribution of individual banks to a crisis of the financial sector. Further results show that bank size and interconnectedness are positively related and competition is negatively related to global financial fragility. In contrast, we find no convincing evidence that a bank’s supervisory environment or non-interest income significantly influence a bank’s exposure or contribution to systemic risk.

Keywords: financial crises, systemic risk, bank regulation, regulatory capital, deposit insurance

JEL Classification: G01, G21

Suggested Citation

Bostandzic, Denefa and Pelster, Matthias and Weiss, Gregor N. F., Systemic Risk, Bank Capital, and Deposit Insurance Around the World (October 7, 2014). Available at SSRN: https://ssrn.com/abstract=2438693 or http://dx.doi.org/10.2139/ssrn.2438693

Denefa Bostandzic

Heinrich Heine University Dusseldorf ( email )

Universitätsstrasse 1
Duesseldorf, DE NRW 40225
Germany

Matthias Pelster (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

european center for financial services (ecfs) ( email )

Lotharstraße 65
Duisburg, 47057
Germany

Gregor N. F. Weiss

University of Leipzig - Faculty of Economics and Management Science ( email )

Grimmaische Str. 12
Leipzig, 04109
Germany
+49 341 97 33821 (Phone)
+49 341 97 33829 (Fax)

HOME PAGE: http://www.wifa.uni-leipzig.de/nfdl

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