نظم و انضباط بازار و اصلاحات بیمه سپرده در ژاپن

On April 1, 2002, the Japanese government lifted a blanket guarantee of all deposits and began limiting the coverage of time deposits. This paper uses this deposit insurance reform as a natural experiment to investigate the relationship between deposit insurance coverage and market discipline. I find that the reform raised the sensitivity of interest rates on deposits, and that of deposit quantity to default risk. In addition, the interest rate differentials between partially insured large time deposits and fully insured ordinary deposits increased for risky banks. These results suggest that the deposit insurance reform enhanced market discipline in Japan. I also find, however, that too-big-to-fail (TBTF) policy became a more important determinant of interest rates and deposit allocation after the reform, thereby partially offsetting the positive effects of the deposit insurance reform on overall market discipline.

Deposit insurance is one of the most controversial issues in economics. As shown by Diamond and Dybvig (1983), deposit insurance can reduce the likelihood of system-wide bank panic as it assures depositors of the safety of their deposits. Deposit insurance, however, also reduces depositors’ incentives to carefully select and monitor banks. Consequently, deposit insurance provides banks with opportunity and incentives to increase leverage and take excessive risk unless bank regulators perform effective supervision to offset the weakening of depositor discipline.1 This negative consequence of deposit insurance has been extensively examined in empirical studies. Various historical studies of US banks show that insured banks held less capital, took more excessive risk, and failed more frequently than uninsured banks.2 Recent cross-country studies also find that the combination of generous deposit insurance schemes and weak banking supervision tend to promote excessive risk-taking by banks, which in turn results in an increase in the likelihood of large scale banking distress and an increase in the fiscal cost of banking crises.3

This paper uses the deposit insurance reform of April 2002 in Japan as a natural experiment to test whether the coverage limit of deposit insurance enhances market discipline. It finds three notable results. First, the deposit insurance reform raised the sensitivity of interest rates on deposits and that of deposit quantity to bank default risk. Second, the interest rate differential between partly insured large time deposits and fully insured ordinary deposits increased for banks with high default risk. These results suggest that the reform had positive effects on market discipline in Japan. I also find, however, that the TBTF policy began to determine how deposits are allocated among banks in Japan. In other words, some severely distressed large banks continued to pay the same interest rates as healthy banks without suffering from rapid outflow of deposits simply because depositors anticipated external support from the government. It is safe to say that while the deposit insurance reform strengthened market discipline, the failure to remove the TBTF policy partially offset the positive effects of the deposit insurance reform on overall market discipline.