Pricing Full Deposit Insurance in Germany amidst the Financial Crisis 2008-2010

Markus Kosters, Stefan Streatmans and Mario Maggi
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Markus Kosters: School of Business and Economics, Maastricht University
Stefan Streatmans: Maastricht research school of Economics of Technology and Organizations
Mario Maggi: Department of Economics and Quantitative Methods, University of Pavia

No 143, Quaderni di Dipartimento from University of Pavia, Department of Economics and Quantitative Methods

Abstract: This paper investigates the pricing of full deposit insurance in Germany in the context of its political promise by the German government. We implement the characteristics of the mutual guarantee framework of German banks and the specifics of the German deposit insurance system into a Monte Carlo model. The analysis suggests that banks have an incentive to increase their riskiness if they do not have to bear the fair value of the insurance costs of their deposits. On the other hand, the government should incentivise banks to reduce their size and become more specialized to achieve better diversification in the German banking landscape.

Keywords: Asset pricing; financial crisis; deposit insurance; mutual guarantee framework (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-05
New Economics Papers: this item is included in nep-ban, nep-cba and nep-ias
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