Deposit Insurance System and Moral Hazard: the Case of Russia

The study examines the problem of moral hazard in the Russian banking system after the introduction of the Deposit insurance system. The purpose of the work is to identify and confirm the presence of moral hazard problem in the banking system of Russia, and to analyze the changes in the level of riskiness of the policy of banks depending on changes in the scheme of the Deposit insurance system. The paper presents an econometric model by which the impact of the introduction and expansion of the Deposit insurance system on the riskiness of bank policies is assessed. The hypothesis of an increase in moral hazard in response to the introduction of Deposit insurance has not been confirmed. Moreover, the level of the riskiness of banks policy with state participation was not sensitive to changes in the Deposit insurance system. However, the increase in the amount of maximum compensation has a significant impact on the level of riskiness of commercial banks. The increase in the amount of insurance coverage to 700,000 rubles (2008) and to 1,400,000 rubles (2015) had the greatest impact on the risk of commercial banks, which is stable in all specifications. The results are consistent with the hypothesis of the existence of moral hazard problem in the management of banks and are the basis for further research in order to form an optimal scheme of Deposit insurance system in Russia. Thus, we can say that the analysis carried out in this study suggests the possible emergence of negative incentives for banks and depositors, which can lead to an increase in the fragility of the banking system. The study can be used as a reference, theoretical material for the management of commercial banks for supervision and quality control over the level of risk policy. Moreover, the results are likely to be of interest to regulators when planning changes, improvements in the Deposit insurance system and regulatory innovations.