We incorporate the deposit insurance system into the analysis framework of the impact of bank information disclosure on their risk-taking, and empirically test the impact and synergistic effect of deposit insurance system and bank information disclosure on their risk-taking using the data of 266 Chinese commercial banks from 2007 to 2019. We find that the improvement of bank information disclosure will reduce bank risk taking, and the implementation of deposit insurance system will help reduce bank risk taking. The implementation of deposit insurance system and the improvement of bank information disclosure can not only inhibit the bank’s risk taking, but also play a synergistic role in reducing bank’s risk taking. Several extensions for future research are also offered.
KeywordsDeposit Insurance SystemBank Information DisclosureBank Risk TakingSynergy Effect
Zhang, Z.P. and He, G.W. (2005) Implicit Insurance, Market Discipline and the Reform of Banking in China. China Soft Science, No. 12, 43-48.
Li, Y.P. and Han, L.Y. (2008) Carter Value, Implicit Insurance and Risk-Taking: Evidence from Chinese Banking Sector. Journal of Financial Research, No. 1, 79-90.
Mayes, D.G., Halme, L. and Liuksila, A. (2001) Improving Banking Supervision. Palgrave, Basingstoke, 61. https://doi.org/10.1057/9780230288195
Hirtle, B. (2007) Public Disclosure, Risk, and Performance at Bank Holding Companies. FRB of New York Staff Report, No. 293. https://doi.org/10.2139/ssrn.1003219
Demirgüç-Kunt, A., Detragiache, E. and Tressel, T. (2008) Banking on the Principles: Compliance with Basel Core Principles and Bank Soundness. Journal of Financial Intermediation, 17, 511-542. https://doi.org/10.1016/j.jfi.2007.10.003
Houston, J.F., Lin, C., Lin, P. and Ma, Y. (2010) Creditor Rights, Information Sharing, and Bank Risk Taking. Journal of Financial Economics, 96, 485-512. https://doi.org/10.1016/j.jfineco.2010.02.008
Vauhkonen, J. (2012) The Impact of Pillar 3 Disclosure Requirements on Bank Safety. Journal of Financial Services Research, 41, 37-49. https://doi.org/10.1007/s10693-011-0107-x
Demirgüç-Kunt, A. and Huizinga, H. (2004) Market Discipline and Deposit Insurance. Journal of Monetary Economics, 51, 375-399. https://doi.org/10.1016/j.jmoneco.2003.04.001
Wang, Z.R., Wan, Y.Y. and Zhou, Y.J. (2015) Relationship between Bank Information Disclosure and Bank Risk-Taking under Implict Deposit Insurance System. Journal of Management Sciences in China, 18, 84-97.
Zhu, B., Yang, W.H. and Lu, L. (2016) Information Disclosure, Deposit Insurance System and Systemic Risks of Banks. Journal of Finance and Economics, 42, 96-107.
Dai, F.F. and Xiong, X.L. (2018) Information Disclosure and Deposit Insurance System: Moral Hazards of Listed Commercial Banks. Journal of Financial Development Research, 2018, 3-10.
Bertomeu, J. and Magee, R.P. (2011) From Low-Quality Reporting to Financial Crises: Politics of Disclosure Regulation along the Economic Cycle. Journal of Accounting and Economics, 52, 209-227. https://doi.org/10.1016/j.jacceco.2011.08.005
Bourgain, A., Pieretti, P. and Zanaj, S. (2012) Financial Openness, Disclosure and Bank Risk-Taking in MENA Countries. Emerging Markets Review, 13, 283-300. https://doi.org/10.1016/j.ememar.2012.01.002
Wilson, W., Rose, L. and Pinfold, J. (2012) Moderating Risk in New Zealand Retail Banks: Disclosure as an Alternative Regulatory Regime. Journal of Banking Regulation, 13, 4-23. https://doi.org/10.1057/jbr.2011.11
Wu, Y. and Bowe, M. (2012) Information Disclosure and Depositor Discipline in the Chinese Banking Sector. Journal of International Financial Markets, Institutions and Money, 22, 855-878. https://doi.org/10.1016/j.intfin.2012.05.004
Xiang, H.J. and Zhang, Q.J. (2020) Does the Deposit Insurance System Reduce Bank Risk? Empirial Evidence from China. The Journal of World Economy, 43, 117-141.
Lu, W.P. (2003) Research on Government Guarantee and Financial Cost in China’s Economic Transformation. Fudan University, Shanghai.
Xie, P. and Cheng, Y. (2004) The Conditions of Establishing Our Deposit Insurance System Have Become Mature. Financial Times.
She, G.R. (2009) The Reform Trend and Enlightenment of International Explicit Deposit Insurance System Based on Market Constraints. Financial Theory & Practice, No. 4, 59-63.
Tan, W.D. (2008) Research on Market Discipline Effects of the Banking System in China. Shandong University, Jinan.
Xu, Y.C. (2009) Information Disclosure, Market Discipline and Risk-Taking Behaviors of Banks. Journal of Finance and Economics, 35, 120-130.
Nier, E. and Baumann, U. (2006) Market Discipline, Disclosure and Moral Hazard in Banking. Journal of Financial Intermediation, 15, 332-361. https://doi.org/10.1016/j.jfi.2006.03.001
Stiglitz, J.E. and Weiss, A. (1981) Credit Rationing in Markets with Imperfect Information. The American Economic Review, 71, 393-410.
Atkinson, A.B. and Stiglitz, J.E. (1972) The Structure of Indirect Taxation and Economic Efficiency. Journal of Public Economics, 1, 97-119. https://doi.org/10.1016/0047-2727(72)90021-7
Yang, J., Wang, X., Tan, Y.Y., et al. (2018) Economic Policy Uncertainty, Implicit Guarantee and Divergence of Corpoate Leverage Rate. China Economic (Quarterly), 17, 449-470.
Qian, X.A. (2004) Moral Risk, Constraints and System Design of Deposit Insurance. Journal of Financial Research, No. 8, 21-27.
Diamond, D.W. and Dybvig, P.H. (1983) Bank Runs, Deposit Insurance, and Liquidity. Journal of Political Economy, 91, 401-419. https://doi.org/10.1086/261155
Xie, P., Wang, S.Z. and Yan, W. (2001) The Theoretical Study and International Comparison of the Deposit Insurance. Journal of Financial Research, 5, 1-12.
Zhao, S.M. and Chen, Q. (2019) Does Deposit Insurance System Reduce Bank Risk?—Based on Panel Data Analysis of 116 Countries. Studies of International Finance, No. 7, 56-65.
Zhang, Y.M. and Zhao, Y. (2006) The Effection on Bank’s Moral Hazard from Implicit Deposit Insurance System to Explicit Deposit Insurance System. South China Journal of Economics, No. 5, 104-111.
Diamond, D.W. and Rajan, R.G. (2000) A Theory of Bank Capital. The Journal of Finance, 55, 2431-2465. https://doi.org/10.1111/0022-1082.00296
Marcus, A.J. (1984) Deregulation and Bank Financial Policy. Journal of Banking & Finance, 8, 557-565. https://doi.org/10.1016/S0378-4266(84)80046-1
López, M., Tenjo, F. and Zárate, H. (2011) The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia. Ensayos sobre Política Económica, 29, 212-234.
Acharya, V.V. and Yorulmazer, T. (2007) Too Many to Fail—An Analysis of Time-Inconsistency in Bank Closure Policies. Journal of Financial Intermediation, 16, 1-31. https://doi.org/10.1016/j.jfi.2006.06.001
Nier, E. and Baumann, U. (2006) Market Discipline, Disclosure and Moral Hazard in Banking. Journal of Financial Intermediation, 15, 332-361. https://doi.org/10.1016/j.jfi.2006.03.001
Xu, Y.C. and He, J. (2008) On the Partial Implicit Insurance Policy and the Risk taking Behavior of Banks. Journal of Financial Research, 331, 163-173.
Delis, M.D. and Kouretas, G.P. (2011) Interest Rates and Bank Risk-Taking. Journal of Banking & Finance, 35, 840-855. https://doi.org/10.1016/j.jbankfin.2010.09.032
Laeven, L. and Levine, R. (2009) Bank Governance, Regulation and Risk Taking. Journal of Financial Economics, 93, 259-275. https://doi.org/10.1016/j.jfineco.2008.09.003
Ibrahim, W.H.W., Ismail, A.G. and Zabaria, W.N.W.M. (2011) Disclosure, Risk and Performance in Islamic Banking: A Panel Data Analysis. International Research Journal of Finance and Economics, 72, 100-114.
Barth, J.R., Caprio, G. and Levine, R. (2013) Bank Regulation and Supervision in 180 Countries from 1999 to 2011. Journal of Financial Economic Policy, 5, 111-219.
Lé, M. (2013) Deposit Insurance Adoption and Bank Risk-Taking: The Role of Leverage. Working Papers halshs-00911415, HAL.
Li, Y. (2006) The Franchise Values of Chinese Banks: 1994-2003. Shanghai Finance, No. 2, 26-30.
Blundell, R. and Bond, S. (1998) Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics, 87, 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8