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Does a Deposit Insurance Scheme Induce Moral Hazard among Bankers? Evidence from an experiment with bankers

Gadjah Mada International Journal of Business (GamaIJB) · Vol. 20 No. 3 (2018) · pp. 355–373

DOI
10.22146/gamaijb.38873
ISSN
2338-7238, 1411-1128
Published
2018-12-30
Publisher
Master in Management, Faculty of Economics and Business, Universitas Gadjah Mada
Language
eng
License
creativecommons.org/licenses/by-sa/4.0

Abstract

The implementation of a deposit insurance scheme entails a trade off. On one hand, as shown in theoretical and empirical studies, a deposit insurance scheme reduces the likelihood of a bank run. On the other hand, a deposit insurance scheme induces moral hazard among bankers that may lead to bank failures. We rigorously test the effect of different deposit coverage limit and the implementation of a differential premium treatment on bankers’ behaviors in the deposit and credit market. We do so by designing a laboratory experiment that involves real bankers as participants. We find that the coverage limit treatments do not have any effect on deposit rate offer. Nevertheless, we find that a high deposit coverage limit induces smaller banks to have a higher share of risky projects. This is evidence of moral hazard particularly among small banks.

Keywords

Collaboration network of the authors

8 authors · 10 co-authorship links · 5 across different organisations

Hover or tap a name to highlight its co-authors. Double-click to open the author's page.

  • Universitas Gadjah Mada
  • Boston University
  • Universitas Airlangga
  • Different organisations
  • Same organisation
  • Affiliation unknown
  • Thicker line = more joint articles · bigger circle = more articles
Show as table
Co-authorOrganisationJoint articles
Insukindro InsukindroUniversitas Gadjah Mada1
Basu Swastha DharmmestaUniversitas Gadjah Mada1
Dien MardhiyahUniversitas Airlangga1
Yudistira Hendra PermanaUniversitas Gadjah Mada1
Giovanni van EmpelUniversitas Gadjah Mada1

Affiliations come from OpenAlex; journal OAI-PMH metadata carries none. Authors without an OpenAlex ID are matched by name, which can merge or split people.

Metadata source: OAI-PMH (metadata jurnal) https://journal.ugm.ac.id/gamaijb/oai, first harvested 28 Okt 2026, last seen 1 Nov 2026.
Original metadata (oai_dc) 
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	<dc:title xml:lang="en-US">Does a Deposit Insurance Scheme Induce Moral Hazard among Bankers? Evidence from an experiment with bankers</dc:title>
	<dc:creator>Sahadewo, Gumilang Aryo</dc:creator>
	<dc:creator>Purwanto, Bernardinus Maria</dc:creator>
	<dc:creator>Pradiptyo, Rimawan</dc:creator>
	<dc:subject xml:lang="en-US">Economics; Banking</dc:subject>
	<dc:subject xml:lang="en-US">deposit insurance, credit market, deposit market, banking, moral hazard, laboratory experiment.</dc:subject>
	<dc:subject xml:lang="en-US">G21, G28</dc:subject>
	<dc:description xml:lang="en-US">The implementation of a deposit insurance scheme entails a trade off. On one hand, as shown in theoretical and empirical studies, a deposit insurance scheme reduces the likelihood of a bank run. On the other hand, a deposit insurance scheme induces moral hazard among bankers that may lead to bank failures. We rigorously test the effect of different deposit coverage limit and the implementation of a differential premium treatment on bankers’ behaviors in the deposit and credit market. We do so by designing a laboratory experiment that involves real bankers as participants. We find that the coverage limit treatments do not have any effect on deposit rate offer. Nevertheless, we find that a high deposit coverage limit induces smaller banks to have a higher share of risky projects. This is evidence of moral hazard particularly among small banks.</dc:description>
	<dc:publisher xml:lang="en-US">Master in Management, Faculty of Economics and Business, Universitas Gadjah Mada</dc:publisher>
	<dc:contributor xml:lang="en-US">This work was supported by the Indonesian Deposit Insurance Corporation (Lembaga Penjaminan Simpanan) [grant number KTR-01/RPSK2-ANALISIS.PERILAKU/2017].</dc:contributor>
	<dc:date>2018-12-30</dc:date>
	<dc:type>info:eu-repo/semantics/article</dc:type>
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	<dc:type xml:lang="en-US">Peer-reviewed Article</dc:type>
	<dc:format>application/pdf</dc:format>
	<dc:identifier>https://journal.ugm.ac.id/gamaijb/article/view/38873</dc:identifier>
	<dc:identifier>10.22146/gamaijb.38873</dc:identifier>
	<dc:source xml:lang="en-US">Gadjah Mada International Journal of Business; Vol 20, No 3 (2018): September-December; 355-373</dc:source>
	<dc:source>2338-7238</dc:source>
	<dc:source>1411-1128</dc:source>
	<dc:language>eng</dc:language>
	<dc:relation>https://journal.ugm.ac.id/gamaijb/article/view/38873/24301</dc:relation>
	<dc:rights xml:lang="en-US">Copyright (c) 2019 Gadjah Mada International Journal of Business</dc:rights>
	<dc:rights xml:lang="en-US">http://creativecommons.org/licenses/by-sa/4.0</dc:rights>
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