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J. Risk Financial Manag. 2018, 11(4), 79; https://doi.org/10.3390/jrfm11040079

Capital Adequacy, Deposit Insurance, and the Effect of Their Interaction on Bank Risk

1
Department of Finance, Thammasat Business School, Thammasat University, Bangkok 10200, Thailand
2
Kasikorn Bank, Bangkok 10200, Thailand
3
Accounting and Finance, Business School, University of Western Australia, Perth, WA 6009, Australia
4
Great Valley School of Graduate Professional Studies, Pennsylvania State University, Malvern, PA 19355, USA
*
Author to whom correspondence should be addressed.
Received: 20 September 2018 / Revised: 14 November 2018 / Accepted: 15 November 2018 / Published: 19 November 2018
(This article belongs to the Special Issue Commercial Banking)
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Abstract

This paper investigates how deposit insurance and capital adequacy affect bank risk for five developed and nine emerging markets over the period of 1992–2015. Although full coverage of deposit insurance induces moral hazard by banks, deposit insurance is still an effective tool, especially during the time of crisis. On the contrary, capital adequacy by itself does not effectively perform the monitoring role and leads to the asset substitution problem. Implementing the safety nets of both deposit insurance and capital adequacy together could be a sustainable financial architecture. Immediate-effect analysis reveals that the interplay between deposit insurance and capital adequacy is indispensable for banking system stability. View Full-Text
Keywords: deposit insurance; capital adequacy; bank risk deposit insurance; capital adequacy; bank risk
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Jumreornvong, S.; Chakreyavanich, C.; Treepongkaruna, S.; Jiraporn, P. Capital Adequacy, Deposit Insurance, and the Effect of Their Interaction on Bank Risk. J. Risk Financial Manag. 2018, 11, 79.

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