DOES DEPOSIT INSURANCE INDUCE MORAL HAZARD? AN EMPIRICAL STUDY WITH CREDIT UNIONS FROM THE STATE OF MINAS GERAIS

Authors

DOI:

https://doi.org/10.5700/issn.2177-8736.rege.2012.49914

Keywords:

Moral Hazard, Deposit Insurance, Credit Unions, Capital Adequacy

Abstract

The deposit insurance mechanism is aimed at the security and liquidity of the financial system. But, paradoxically,  it may end up increasing the instability of  the financial system as a result of  themoral hazard problem. In fact, conflicting interests of the parties coupled with imperfect monitoringcan induce financial institutions under the protection of a deposit insurance system to run into morerisk than  the level recommended by the fund manager.  This study tested the hypothesis that the Deposits Guarantee Fund (FGD) has not induced the  moral hazard  problem,  using a panel composed of 62% of credit unions in the state of Minas Gerais affiliated to the Sicoob-Crediminassystem from January 1995 to May 2008. We tested alternative specifications for panel data models using six proxies for the degree of risk exposure of cooperatives as suggested by the literature. Wefound that the preferred model is the fixed e ects model estimated by Feasible Generalized Least Squares.  We could not reject the null hypothesis that the FGD has not induced moral hazard problems.

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Author Biographies

  • Valéria Gama Fully Bressan, Federal University of Minas Gerais

    Professora do Programa de Pós-Graduação em Contabilidade e Controladoria da Universidade Federal de Minas Gerais (UFMG)−Belo Horizonte-Minas Gerais, Brasil

    Pós-Doutora pela Universidade Federal de Viçosa (UFV)

    Doutora em Economia Aplicada pela Universidade Federal de Viçosa (UFV)

  • Marcelo José Braga, Federal University of Viçosa

    Professor do Programa de Pós- Graduação em Economia Aplicada, Universidade Federal de Viçosa (UFV)−Viçosa-Minas Gerais, Brasil

    Pós-Doutorado pela University of  California at Davis (UCD)Estados Unidos

    Doutor em Economia Rural pela Universidade Federal de Viçosa (UFV)

  • Moisés de Andrade Resende Filho, University of Brasília

    Professor do Programa de Pós-Graduação em Economia, Departamento de Economia da Universidade de Brasília (UnB)−Brasília-Distrito Federal, Brasil

    Ph.D. em Economia Aplicada pela University of Minnesota, Estados Unidos

  • Aureliano Angel Bressan, Federal University of Minas Gerais

    Professor do Centro de Pós-Graduação e Pesquisas em Administração da Universidade Federal de Minas Gerais (UFMG)−Belo Horizonte, Minas Gerais, Brasil

    Doutor em Economia Aplicada pela Universidade Federal de Viçosa (UFV)

References

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Issue

Vol. 19 No. 3 (2012)

Section

Economia

How to Cite

DOES DEPOSIT INSURANCE INDUCE MORAL HAZARD? AN EMPIRICAL STUDY WITH CREDIT UNIONS FROM THE STATE OF MINAS GERAIS. (2013). REGE Revista De Gestão, 19(3). https://doi.org/10.5700/issn.2177-8736.rege.2012.49914