Financial innovation and moral hazard: the case of time deposits with special guarantee. Issue 17 (9th April 2022)

• Record Type: Journal Article
• Authors: Androvandi, Gilberto Hanssen; Carrasco-Gutierrez, Carlos Enrique; Tabak, Benjamin Miranda
• Is Part Of: Applied economics. Volume 54:Issue 17(2022)
• Page Start: 1934
• Page End: 1944
• Publication Date: 2022-04-09
• Subjects: Moral hazard -- deposit insurance -- fixed effects -- time deposits -- banking; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2021.2020712
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: The macroprudential policy mechanism of Time Deposits with Special Guarantee (TDSG) was introduced in Brazil after the 2008 global financial crisis to prevent a liquidity shock in the banking sector. The TDSG is a form of deposit insurance established to avoid bank runs and protect depositors in the event of bankruptcy of financial institutions. In this paper, we study the impact of the TDSG policy on the moral hazard of small and medium-sized Brazilian banks based on data from 101 banks in the period 2007 to 2015. The empirical evaluation relies on difference-in-differences estimators with fixed effects. The results provide evidence validating the hypothesis of moral hazard associated with the TDSG policy.