Whether Deposit Insurance Induces Banks To Pursue Higher Risks

Financial security is crucial for a country,the banks are an important part of the financial safety net,but the banks are vulnerable.Once the bank runs and the risk of contagion was appeared,the financial security and economic development of the whole country will be affected.As a result,deposit insurance,which is one of the three major financial safety nets,has been established in more and more countries.The deposit insurance system refers to the deposit banks in accordance with the provisions of the deposit insurance system to pay premiums to form the deposit insurance fund,when the bank deposit business faced problems,in accordance with the provisions,the deposit insurance fund will be the timely paid to depositors.The deposit insurance system was first established in the United States in 1933.In 1930s,the United States experienced a financial crisis,thousands of banks went bankrupt.Finally,the establishment of a deposit insurance system restored the financial collapse of the situation,enhanced the public confidence and eliminated depositor panic.It can play an important role.Therefore,the deposit insurance system can safeguard the interests of depositors,enhance the liquidity of the system and maintain financial stability.But the deposit insurance also raises problems,such as moral hazard,which can negatively affect the banking system or the financial system if banks take risks.As a financial protection policy,the effect of deposit insurance system has always been concerned and controversial.Therefore,it can be seen that the purpose of establishing the deposit insurance system is to protect the interests of depositors,but the deposit insurance system may also induce the moral hazard of banks,and make banks pursue higher risks in business decisions.At present,scholars at home and abroad have not reached the same conclusion about this problem.The Deposit Insurance Regulations which formally implemented in May 1st,2015 marked the establishment of the deposit insurance system in our country.Although the deposit insurance system has been implemented in our country,but it is still in the preliminary stage of development,the deposit insurance system may have the effects of a process to be reflected,so the high risk behavior research in banks should play an important role on deposit insurance system contribution.On the basis of reviewing the previous literatures,this paper adopts the method of experimental economics to compare the investment decision behaviors of banks with and without the deposit insurance system,so as to study whether the deposit insurance will induce the bank to pursue risks.Compared with the previous research on the deposit insurance system,this paper uses the experimental economics method to study the impact of deposit insurance system on bank risk from the perspective of behavioral finance.Finally,the experimental results show that the implementation of the deposit insurance system will induce banks to pursue risks and it encourages the risk management of banks who are more likely to choose high-risk investment projects.The experimental results provide the basis for the institution to improve implement of the deposit insurance system.