| The first deposit insurance scheme was established in January 1st,1931 to solve and avoid the bank runs in 1930s. From then on, the deposit insurance scheme was founded in a group number of countries. Based on the research made by International Association of Deposit Insurers, up to October 31st,2014.113 economies has implemented the deposit insurance scheme. Under the protection of deposit insurance system, the severe bank runs in 1930s has not been repeated. The deposit insurance scheme safeguard the interest of depositors and the stability of banking system. On May 1st,2015, the explicit deposit insurance scheme was introduced in mainland China. Before that, China has spent 22 years to transfer to this explicit scheme from the implicit one. The difference on coverage, ways to payback and other aspects between this two scheme is quite large, that means the operation of explicit deposit may impact the banking industry in mainland China. But since the explicit deposit system has just been built, there is not enough data to do empirical research, so in this essay, the Hong Kong deposit insurance scheme and its influence on banking system was choose to be the object, hoping that the empirical research result can provide some reference to the mainland China.This paper undertake the impact of deposit insurance on the Hong Kong banking system in three aspects, that is market competition, market discipline and the performance of Hong Kong deposit insurance scheme during 2007 financial crisis.Firstly, to test the relation between deposit insurance and market competition in Hong Kong banking industry, the concentration ratio of Hong Kong banking industry from 1999 to 2014 is calculated. Then a model with the concentration ratio as dependent variable, and deposit insurance scheme dummy variable as independent variable has been built, and the number of bank institution are chose to be the control variable. The regression result shows that the deposit insurance has decrease the concentration ratio of banking industry in Hong Kong, then increase the degree of competition.Secondly, the quarterly data of Hong Kong banking system is used to test the relevance between deposit insurance and market discipline. A model with the growth of deposit insurance as dependent variable, and capital adequacy, non-performance loan ratio and loan-to-deposit ratio as independent variables has been built. The regression result shows that there is an obvious discipline in Hong Kong banking market after the adoption of deposit insurance scheme.At last, the essay analyze the performance of deposit insurance during the 2007 financial crisis, and found out that the scheme did not prevent the the bank run in Hong Kong. This accident reflected the unreasonable aspect of Hong Kong deposit insurance scheme in the coverage of insurance, the administration of deposit protection board etc..By analyzing these three aspect, the paper provide some suggestion on improving the deposit insurance in Hong Kong. First is to perfect the information disclosure system. Lowering the information asymmetry in banks’ financial situation and the cost to obtain the information can enhance the market discipline from the depositor. Second is to promote the status of intermediary organizations who can provide information and analysis to depositors and also play the role as market discipline. Third is to change the role of Hong Kong deposit protection board. Resolution functions and that of banking supervisor or macro-prudential regulator can be added to deposit protection board.Then the revelation is concluded in this paper for mainland China. First is to create a healthy and fair banking competition environment. The execution of deposit insurance and the liberalization of interest rate may increase the level of banking competition, so a better competition environment can prevent banks from blind competition and the crisis from it. Second is to insure the reliability and the timeliness of bank financial information. Third is to adjust the coverage of insurance in a reasonable amount. And the last is to improve the knowledge of deposit insurance among depositors.Then the revelation is concluded in this paper for mainland China. First is to create a healthy and fair banking competition environment. The execution of deposit insurance and the liberalization of interest rate may increase the level of banking competition, so a better competition environment can prevent banks from blind competition and the crisis from it. Second is to insure the reliability and the timeliness of bank financial information. Third is to adjust the coverage of insurance in a reasonable amount. And the last is toThe innovation of this paper is that using the empirical model to analysis the impact of deposit insurance on Hong Kong banking sector in three aspects, that is that is market competition, market discipline and the performance of Hong Kong deposit insurance scheme during 2007 financial crisis. |
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