Deposit insurance and international bank liabilities

This paper examines the responsiveness of external bank liabilities to deposit insurance policies for a sample of developed countries. External bank liabilities held by non-banks are found to increase after the introduction of explicit deposit insurance. Deposit insurance schemes tend to exclude interbank deposits from coverage and the response of external interbank liabilities to deposit insurance appears to be varied. Neither external non-bank nor external interbank liabilities are found to be materially affected by deposit insurance design. This suggests that international competition in the area of deposit insurance design - as possible under the EU deposit insurance directive of 1994 - would be fruitless.