The purpose of this paper is to examine how the social system of deposit insurance affected the financial market in Korea. Specifically, we want to know how much the risk-seeking behavior of financial institutions has increased or decreased. The most important feature of the deposit insurance system is to prevent the insolvency of financial institutions and to properly protect depositors. In recent studies, it has been argued that characteristics of deposit insurance bring moral hazard of financial institutions and that financial institutions make unreasonably risky investments. Therefore, in this study, we will first examine whether such previous research can be applied to the Korean financial market. Next, we will examine the appropriateness of the differential premium rate that is currently used for each financial institution in the Korean financial market. In order to test the first hypothesis, we used the Capital Asset Pricing Model (CAPM) to calculate the total risk for each financial institution. As a result, significant changes were found in all regions before and after the introduction of the deposit insurance system. As for testing the second hypothesis, we conducted a variance analysis of financial institutions' indexes before and after the introduction of the deposit insurance and we discovered significance of the total risk difference.

Abstract
 1. Introduction
 2. Literature review
 3. Data and Empirical Method
  3.1. Data Descripti
  3.2. Beta and Total Risk estimates with CAPM
  3.3. Empirical Model
 4. Main Results
  4.1. Estimation Results: Significance of total risk difference before and after introduction of deposit insurance
  4.2. Estimation Results: Analysis of variance within the region through analysis of variance of banks, securities and insurance
 5. Concluding Remarks
 References

• Jungho Choi(Sogang Business School, Sogang University)
• Duckhyun Cho(Sogang Business School, Sogang University) Corresponding Author