Deposit Insurance System, Bank Capital Regulation and Risk Taking Behavior: Empirical Evidences from China’s Banking Industry

Abstract

Abstract: This paper introduces the deposit insurance system into the analytical framework of the impact of bank capital regulation on risk-taking behaviors, and empirically tests the impact of bank capital regulation on risk-taking behaviors and its synergy effect with the help of the data of 475 Chinese commercial banks from 2009 to 2019. The results show that bank capital regulation will reduce bank risk-taking, and the role of reducing bank risk-taking in crisis is greater than that in normal period. When the deposit insurance system is introduced, the interaction between capital regulation and the deposit insurance system will further reduce bank risk-taking behaviors. Bank capital supervision and deposit insurance system not only have a synergistic effect on the overall bank risk-taking behaviors, but also interact to reduce significantly the risk at the bank asset side and the risk at the liability side. After controlling the heterogeneous effect of the observed values at the bank level and at the regional level, the results remain robust. The conclusions of this study has important policy implications for the improvement of bank supervision and giving full play to the synergistic effect of capital supervision and deposit insurance, so as to jointly manage the risk taking behaviors of banks.

Key words: deposit insurance system, bank capital supervision, bank risk taking, synergy effect

CLC Number:

F832.2

HU Yuan-cheng, WANG Xing-yu. Deposit Insurance System, Bank Capital Regulation and Risk Taking Behavior: Empirical Evidences from China’s Banking Industry[J]. Journal of Jiangxi University of Finance and Economics, 2021, 0(3): 14-28.

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