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| Deposit Insurance System, Explicit Savings Security and Financial Stability |
| WANG Qing, YAO Shuai, SO Yukchow
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| School of Finance/Institute of Chinese Financial Studies,Southwestern University of Finance and Economics; School of Business, Macau University of Science and Technology |
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Abstract Financial security is pivotal to the overall national economy and social stability. As a core pillar of the financial safety net, the explicit deposit insurance system is a crucial instrument for safeguarding financial stability. Protecting the safety of public savings is also the original intent and mission of implementing an explicit deposit insurance system. China's high savings rate and its strong resilience to economic fluctuations are the root causes of its robust risk-resistant capacity. This reality also constitutes a key reason why China needs to rely on an explicit deposit insurance system to fully safeguard public savings. In the context of China's accelerated advancement of deposit insurance system reform, it is necessary to explore the significant value of explicit savings security for maintaining financial stability. Existing literature predominantly focuses on its partial value for banking stability, leaving its comprehensive value for broader financial stability and the underlying transmission channels unexplored. There remain shortcomings in terms of research samples, measurement indicators, analytical perspectives, theoretical modeling, and empirical design.
Theoretically, this paper is the first to integrate the stability of both the banking sector and the non-bank sector into a unified analytical framework for studying savings security and financial stability. By introducing non-bank sectors and survival preferences, we extend the heterogeneous depositor equilibrium model of Dávila and Goldstein (2023). We treat banking sector stability as the direct perspective for examining financial stability, and non-bank financial sector stability as the spillover effect. The study investigates how the degree of explicit savings security affects financial stability through specific channels. Empirically, utilizing panel data from 60 countries spanning from 1985 to 2022 and employing a two-way fixed effects model, this paper examines the impact of explicit savings security on financial stability. The empirical results demonstrate that explicit savings security has a positive effect on financial stability. On the one hand, it functions as a “stability anchor” through direct effect channels that stabilize the banking sector and spillover effect channels that stabilize other financial sectors. On the other hand, it serves as a “trust anchor” through channels of government and social trust. Further research indicates that the financial stability effect of explicit savings security is more pronounced in countries with weaker implicit guarantee expectations and more evident shortcomings in their financial safety nets.
Compared to existing literature, this research makes four primary contributions. First, shifting from the broad concept of savings to a narrow concept of savings security, this paper thoroughly demonstrates the significant value of explicit savings security, based on deposit insurance coverage levels, for maintaining financial stability. Second, relevant research frequently concentrates on bank runs but less on runs in non-bank financial sectors, and fails to adequately discuss the roles of the “stability anchor” and “trust anchor” in safeguarding financial stability. This paper introduces interbank sectors and survival preferences into the model to explain the mechanism through which explicit savings security promotes financial stability by stabilizing both the banking and non-bank financial sectors. Third, existing studies tend to focus on the partial stability of banks rather than the overall stability of the financial system, lacking attention to relevant causal chains and mechanisms. There is also a scarcity of multinational evidence covering long time spans and various channels. This paper, combining long-term panel data from major global economies and employing robust estimation strategies, identifies empirical evidence that explicit savings security promotes financial stability through the “stability anchor” and “trust anchor” mechanisms. Fourth, our findings enrich the understanding of the narrow concept of savings security, particularly demonstrating the important practical value of the deposit insurance system and explicit savings security. This counters arguments of “nominal existence” or “ineffectiveness” regarding deposit insurance system construction, providing a basis for China to steadfastly develop a deposit insurance system with Chinese characteristics.
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Received: 17 December 2025
Published: 06 August 2026
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