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Market discipline and deposit insurance

Table of Content
Introduction ........................................................................................................................... 2
Deposit Insurance Around the World ................................................................................... 2
The Concept of Market Discipline ........................................................................................ 5
Market Discipline and Deposit Insurance ............................................................................. 6
Conclusion ............................................................................................................................ 7
Reference............................................................................................................................... 8
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Introduction
It is said that market disciplines may cause constraints for buyers as well as sellers
regarding price-setting as both buyers and sellers always try their best in generating revenue
and avoiding the risk of bankruptcy. It means that with a view to meeting economic needs,
buyers will eradicate the prices which may cause bankruptcy to them, and sellers should
access the prices which can bring revenue back. Market discipline has been considered as one
of special concerns of laws regarding banking deposit insurance (Peria and Schmukler, 2002;
Demirgüç-Kunt and Huizinga, 2004; Imai, 2006; Forssbæck, 2011; Karas et al., 2013). The
government normally provide deposit insurance for those who have banking deposits. The
managers of banking system strive with high efforts in avoiding risky loans as well as other
investments. Nevertheless, mandated deposit insurance ay eliminates the risks to the bankers,
resulting in the loss of market disciplines. Therefore, many regulations of the Government
have been introduced in order to prevent the phenomenon of taking high risks among the
bankers as well as counteract the loss of market discipline. This study aims to review the
market discipline and deposit insurance as well as their relationship.
Table 1 Proportion of countries with explicit deposit insurance to total by category


Source: Demirgüç-Kunt et al. (2006)
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Source: Demirgüç-Kunt et al. (2006)
Figure 1 Trends in the adoption of explicit deposit insurance by income level

Source: Demirgüç-Kunt et al. (2006)
Figure 2 Trends in the adoption of explicit deposit insurance by region
Conclusion
In this study, deposit insurance around the world has been reviewed by category, income
level as well as by region. The concept of market discipline has introduced exclusively
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through literature review. Moreover, the relations between these two are presented through
evidence provided in prior studies.

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