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Article dans une revue

Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy

Abstract : This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector.
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Article dans une revue
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https://hal-unilim.archives-ouvertes.fr/hal-01134833
Contributeur : Thierno Barry <>
Soumis le : mardi 24 mars 2015 - 12:57:07
Dernière modification le : vendredi 6 mars 2020 - 02:06:02

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  • HAL Id : hal-01134833, version 1

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Emmanuelle Nys, Amine Tarazi, Irwan Trinugroho. Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy. Journal of Financial Stability, Elsevier, 2015, 19, pp.83-104. ⟨hal-01134833⟩

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