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Deposit Insurance and Moral Hazard in Hungary

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Deposit Insurance and Moral Hazard in Hungary Katalin Kallóné Csaba Deposit Insurance and Moral Hazard in Hungary Faculty of Investments and Corporate Sciences Supervisors: Edina Berlinger, Ph.D and Helena Naffa, Ph.D © All rights reserved – Katalin Kallóné Csaba, 2018 Corvinus University of Budapest 2 Doctoral School of Business and Management Deposit Insurance and Moral Hazard in Hungary Doctoral Dissertation Katalin Kallóné Csaba Budapest, 2018 3 4 Table of Contents 1 INTRODUCTION ............................................................................................ 10 2 DEPOSIT INSURANCE AND MORAL HAZARD IN LITERATURE ......... 15 2.1. The basic theoretical model of deposit insurance ............................................. 17 2.2 Moral hazard in deposit insurance .................................................................... 22 2.3 Empirical studies on deposit insurance and moral hazard ................................ 29 2.4 Contribution ...................................................................................................... 39 3 THE HUNGARIAN DEPOSIT INSURANCE SYSTEM AND ITS INTERNATIONAL ENVIRONMENT ...................................................................... 40 3.1 The history and operation of deposit insurance in Hungary ............................. 40 3.2 The reimbursement history of NDIF ................................................................. 44 3.3 International outlook ......................................................................................... 46 4 MY OWN EMPIRICAL FINDINGS ............................................................... 51 4.1 Comparing interest rates of the liquidated and operating credit institutions .... 53 4.2 Comparing the depositors of the dissolved and operating credit institutions ... 58 4.3 Classification of the credit institutions dissolved and their depositors according to deposit amount, age and settlement type ................................................................. 77 4.4 Comparing the distribution of deposit amounts in the European Union .......... 93 5 CONCLUSIONS ............................................................................................. 102 6 APPENDIX ..................................................................................................... 108 7 BIBLIOGRAPHY ........................................................................................... 113 5 Table of Figures Figure 1: The introduction of price elasticity into the insurance model of Arrow (1963). Source: Edited from Pauly (1968, p. 533) ...................................................................... 24 Figure 2: A typical value function. Source: Tversky and Kahneman (1986, p. 259). ..... 28 Figure 3: The amount and geographical distribution of deposit insurance reimbursements since 1993. Source: Edited from the NDIF database............................ 45 Figure 4: The change to the coverage level of NDIF as a result of reimbursement events. Source: Edited from the NDIF database. ........................................................................ 45 Figure 5: An empiric research of the signs of moral hazard from four perspectives. Source: Prepared by myself. ........................................................................................... 52 Figure 6: Databases used and combined to compare the depositors of existing and liquidated credit institutions Source: Prepared by myself............................................... 59 Figure 7: A section and the decile values of the distribution function of compensation amounts. Source: Edited from the NDIF database. ......................................................... 64 Figure 8: Testing normality with Q-Q plot analysis. Source: Edited from the NDIF database. .......................................................................................................................... 65 Figure 9: Testing the Weilbull distribution. Source: Edited from the NDIF database. .. 66 Figure 10: Differences between the frequencies of the numbers of deposits placed with existing and liquidated credit institutions. Source: Edited from the NDIF database. ..... 68 Figure 11: The frequency of the number and amount of insured deposits (31. 12. 2015) Source: Edited from the NDIF database. ........................................................................ 69 Figure 12: Comparison of the distribution of reimbursed depositors and the Hungarian population by age. Source: Edited from the databases of NHIF and KSH (2015). ......... 72 Figure 13: Comparison of the distributions of reimbursed depositors and the population of Hungary according to settlement type the direction of the difference. Source: Edited from the databases of NDIF, KSH (2014) and TÁRKI (2015). ....................................... 77 Figure 14: The location of the ten clusters in the latent two-dimensional space - Euclidean distance model. Source: Edited from the databases of NHIF and KSH (2014). ......................................................................................................................................... 81 Figure 15: The deviation of the four clusters from the total average (MCA). Source: Edited from the databases of NHIF and KSH (2014). Note: The values presented in the figure have been standardized. ........................................................................................ 82 6 Figure 16: The average and dispersion of reimbursements paid to private persons by institutions. Source: Edited from the NDIF database...................................................... 85 Figure 17: The Q-Q plot analysis of the distribution of reimbursements paid by Széchenyi Kereskedelmi Bank. Source: Edited from the NDIF database. ..................... 86 Figure 18: Comparison of the age distribution of depositors in liquidated credit institutions by classes. Source: Edited from the NDIF database. ................................... 87 Figure 19: The average and dispersion of the places of residence of the depositors of liquidated credit institutions according to settlement type, by institutions. Source: Edited from the databases of NHIF and KSH (2014). ................................................................ 88 Figure 20: The separation of credit institutions in the two-dimensional space of the clients. Source: Edited from the databases of NHIF and KSH (2014). ........................... 90 Figure 21: The separation of the banks according to the average disbursement amount. Source: Edited from the databases of NHIF and KSH (2014). ....................................... 91 Figure 22: Distinguishing of the banks according to the average age of the depositors. Source: Edited from the databases of NHIF and KSH (2014). ....................................... 91 Figure 23: Distinguishing of the banks according to the average settlement type of the depositors. Source: Edited from the databases of NHIF and KSH (2014). ..................... 92 Figure 24: The frequency (y axis) of the number of members (x axis) of the households in the sample. Source: Edited from HFCS (2014) data. .................................................. 95 Figure 25: The frequency of deposit amounts in each of the Member States included in the sample up to EUR 100 th. Source: Edited from HFCS (2014) data.......................... 96 Figure 26: The frequency of deposit amounts up to EUR 500,000 on the sample taken in Austria. Source: Edited from HFCS (2014) data. ........................................................... 98 Figure 27: Illustration of the differences between the averages of the deposit amounts Source: Edited from HFCS (2014) data. ....................................................................... 100 Figure 28: Deposit insurance limits necessary to attain the average coverage in the individual Member States in the sample. Source: Edited from HFCS (2014) data. .... 100 7 Tables Table 1: The average interest rates on deposits kept by households in existing and liquidated credit institutions (31. 01. 2014) Source: Edited from MNB database .......... 54 Table 2: Testing of the normal distribution of the interest rates of retail HUF deposits (31. 01. 2014) Source: Edited from MNB database ........................................................ 55 Table 3: Is the average of the interest rate of retail HUF deposits significantly higher in one population than in the other (31.01.2014)? Source: Edited from MNB database .... 56 Table 4: The average annual interest rate on HUF retail credits extended by liquidated and existing credit institutions, weighted with the contract sum (31. 01. 2014). Source: Edited from MNB database ............................................................................................. 57 Table 5: Deposits of private persons in existing and liquidated credit institutions. Source: Edited from the NDIF database. ........................................................................ 67 Table 6: Interpretation of the four clusters. Source: Edited from the databases of NHIF and KSH (2014). .............................................................................................................. 82 Table 7: Liquidated credit institutions are significantly distinct in respect of their depositors. Source: Edited from the databases of NHIF and KSH (2014) (SPSS). ........ 89 Table 8: The decile and certain percentile values (above 90) describing distribution in each Member State included in the sample. Source: Edited from HFCS (2014) data. ... 97 Figure 9: ANOVA table of the significant differences
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