This paper aims at empirically investigating the role of moral hazard in the
e¢ctivity of deposit insurance in achieving banking stability. If the negative
e¤ect of deposit insurance on banking stability is through moral hazard, then
deposit insurance will be associated with banking insolvency and credit crunch
more than with bank runs. To test this hypothesis, we compute measures of
these two types of banking instability. We nd that deposit insurance per se
has no signicant e¤ect either on bank insolvency and credit crunch or on bank
runs. However, when the deposit insurance is coupled with an increase in credit
to private sector, it has a positive and signicant e¤ect on bank insolvency and
credit crunch but not on bank runs.
Keywords: Banking Crises, Deposit Insurance, Moral hazard