Deposit Insurance and Moral Hazard in Ecuadorian Credit Unions

Abstract

This paper studies the relation between deposit insurance implementation and moral hazard among Ecuadorian credit union. We use monthly financial data of 34 credit union from December 2007 to July 2015. Non-parametric mean different test and panel data analysis employing monthly risk indicators are used to test for this realationship. Overall, results find no evidence to support out hypothesis that risk levels increased after deposit insurance was implemented in Ecuador on May 2009. However, with some specific indicators, we do find evidence thar risk levels increased. Furher analysis is needed to find more conclusive results, especially using more observations for the pre deposit insurance period and VAR specification.