This paper investigates whether deposit insurance increases banking system stability. It uses a new World Bank dataset on deposit insurance systems across 61 countries from 1980 to 1997, which includes information on the design and coverage of deposit insurance schemes. The study employs a multivariate logit model to analyze the relationship between deposit insurance and the probability of banking crises. The results show that explicit deposit insurance tends to increase bank fragility, with the effect being more pronounced in systems with higher coverage, more liberalized interest rates, and weaker institutional environments. The study also finds that the impact of deposit insurance on bank stability depends on the quality of the regulatory environment. Countries with better institutions experience smaller adverse effects of deposit insurance on bank stability. Additionally, the study addresses potential endogeneity issues by using a two-stage estimation approach. The findings suggest that deposit insurance may encourage moral hazard and increase the likelihood of bank failures, particularly when coverage is extensive and the system is government-funded. The study concludes that while deposit insurance can provide some stability by reducing depositor runs, it may also increase systemic banking crises if not properly regulated. The results highlight the importance of designing deposit insurance systems with limited coverage and strong regulatory frameworks to mitigate the risks associated with moral hazard.This paper investigates whether deposit insurance increases banking system stability. It uses a new World Bank dataset on deposit insurance systems across 61 countries from 1980 to 1997, which includes information on the design and coverage of deposit insurance schemes. The study employs a multivariate logit model to analyze the relationship between deposit insurance and the probability of banking crises. The results show that explicit deposit insurance tends to increase bank fragility, with the effect being more pronounced in systems with higher coverage, more liberalized interest rates, and weaker institutional environments. The study also finds that the impact of deposit insurance on bank stability depends on the quality of the regulatory environment. Countries with better institutions experience smaller adverse effects of deposit insurance on bank stability. Additionally, the study addresses potential endogeneity issues by using a two-stage estimation approach. The findings suggest that deposit insurance may encourage moral hazard and increase the likelihood of bank failures, particularly when coverage is extensive and the system is government-funded. The study concludes that while deposit insurance can provide some stability by reducing depositor runs, it may also increase systemic banking crises if not properly regulated. The results highlight the importance of designing deposit insurance systems with limited coverage and strong regulatory frameworks to mitigate the risks associated with moral hazard.