This study examines the interplay between deposit insurance, central bank ‎supervision, and banking stability, emphasizing the mediating role of moral ‎hazard. Deposit insurance, initially designed as a safeguard to prevent bank runs ‎and protect depositors, may paradoxically undermine financial stability if ‎implemented without adequate supervisory mechanisms. In such contexts, the ‎assurance of depositor protection can encourage banks to engage in excessive ‎risk-taking behavior, thereby increasing systemic vulnerability.‎Using a panel dataset of 118 countries over the period 1980–2004, the study ‎employs a random-effects logistic regression model to evaluate how deposit ‎insurance schemes, in interaction with credit expansion to the private sector (a ‎proxy for moral hazard), influence the likelihood of banking instability. The ‎analysis distinguishes between two types of instability—bank runs and bank ‎insolvencies—to capture both liquidity-driven and solvency-driven crises.‎The findings reveal that deposit insurance alone does not have a statistically ‎significant effect on banking stability; however, when combined with high levels ‎of credit growth and weak regulatory oversight, it significantly increases the ‎probability of banking crises. Moreover, the design features of deposit ‎insurance—such as full coverage or government-funded mechanisms—exacerbate ‎instability when central bank supervision is weak. The study concludes that ‎effective coordination between deposit insurance systems and central bank ‎oversight is essential to mitigate moral hazard and promote sustainable financial ‎stability.‎

Keywords: ‎ Deposit insurance, central bank supervision, banking stability, moral hazard, ‎financial regulation, systemic risk