World Bank research on the effects of deposit insurance concludes that

Question

Quizplus · Accepted Answer

The World Bank research suggests that the adoption of explicit government deposit insurance is associated with a higher incidence of banking crises, contrary to the belief that it promotes stability and efficiency. This is because it can lead to moral hazard, which can increase the risk-taking behavior of banks. The research also notes that the benefits of deposit insurance are more significant in countries with a weaker institutional environment (such as weaker legal frameworks and inadequate regulatory capacity). Therefore, option B is the correct answer.

World Bank Research on the Effects of Deposit Insurance Concludes