Journal of Financial Stability Vol. 86 2026
Deposit insurance system and commercial bank risk-taking–Based on the corporate governance and leverage
Abstract
This study examines how the introduction of China's deposit insurance system affects bank risk-taking, using panel data on 117 commercial banks from 2010 to 2023. Employing a theoretical framework together with system GMM and difference-in-differences estimations, we find that deposit insurance does not uniformly enhance stability; instead, it may increase idiosyncratic risk by weakening market discipline. The effect is concentrated among local commercial banks, with large commercial banks showing comparatively limited responses. Corporate governance and financial leverage serve as important transmission channels: banks with more concentrated ownership or higher leverage exhibit stronger moral hazard incentives following the reform. Robustness tests using the provision coverage ratio confirm these patterns. Overall, the results highlight the heterogeneous impact of deposit insurance across bank types and underscore the importance of governance quality and capital structure in mitigating risk-taking incentives under explicit insurance schemes.
- DOI
- 10.1016/j.jfs.2026.101582
- Volume
- 86
- Pages
- 101582
- Language
- en
- Sources
- crossref openalex