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ORCID

Dorota Skała: 0000-0002-0623-5121

Keywords

bank risk, moral hazard, safety net, market discipline

Abstract

We studied expansions in financial safety nets and their relation to bank risk and depositor behaviour in Central and Eastern Europe, using time-varying regulatory data. In general, we find that stronger deposit insurance and state aid granted to banks are linked with both bank risk and depositor behaviour. However, these relations critically depend on whether safety net instruments are used separately or simultaneously. When deposit insurance is strengthened or state aid is granted, we confirm the standard moral hazard behaviour of banks visible in higher bank risk. In parallel, we observe more elevated deposit growth, implying lower market discipline. Conversely, when there is a simultaneous increase in deposit insurance and granting of state aid, our findings reverse. This indicates that strong policy interventions may have different links to bank risk and depositor trust than single, weaker actions. At the same time, we confirm earlier findings from the literature that expansions of financial safety net are not linked with all types of bank risk and may be associated with lagged effects.

Acknowledgments

Funding

This paper is a result of the research project realised within the framework of National Bank of Poland research grant competition (2012), and fully financed by the NBP

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and publication of the article.

Declaration about the scope of AI utilization

The authors did not use an AI tool in the preparation of the article.

First Page

94

Last Page

112

Page Count

19

Received Date

23.04.2025

Revised Date

17.10.2025

Accept Date

25.10.2025

Online Available Date

25.11.2025

DOI

10.7172/2353-6845.jbfe.2025.2.6

JEL Code

G21, G28

Publisher

University of Warsaw

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