The Influence of the Implementation of Differential Contributions System to the Deposit Insurance Fund on Bank’s Risk Taking in Russian Market

Since the third quarter of 2015 participating banks of deposit insurance system have begun to pay contribution to the fund on a stepped scale. A risk-based deposit insurance system is introduced by the regulator to stimulate banks to reduce risk-taking behavior, which should lead to an increasing of the banking system stability. This paper assesses how the implementation of differential contributions system to the Deposit Insurance Agency (DIA) fund affected the bank’s risk-taking behavior. There is regression analysis of panel data by using information about Russian banks for 2012-2017 years, risk is proxied by Z-score. It was expected that the differential premium insurance system implementation has lowered the bank’s risk-taking behavior in Russian market, and that risky banks had more incentives to reduce risks in comparison with less risky banks, because the difference between the base and higher rates is quite high. It is shown that implementation of the new system reduced risk-taking behavior of risky banks, but increased risk taking incentives of less risky banks. Overall effect of the differential premium insurance system implementation is negative. The research results may be of interest to the bodies regulating banking operations primarily for the DIA.