Deposit insurance in a sequential-service constrained environment

Fernando Barros, Samuel Cruz, Bruno R. Delalibera and Diego Silva

Mathematical Social Sciences, 2025, vol. 136, issue C

Abstract: We study the effect of a deposit insurance scheme (DIS) in an economy with multiple isolated banks. Participant banks fund the scheme, which follows a pre-determined insurance payment scheme. An external player transfers insurance benefits to all banks where depositors are running. The total insurance payment depends on resources collected by the external authority and the number of eligible queues to receive the insurance benefit. We discuss the effect of DIS on the optimal payment contract. More specifically, we analyze the existence of bank-run equilibria and whether the optimal payment contract is incentive-compatible. We find that DIS prevents bank-run equilibria at the same time that it may expose the environment to contagion. We also see that the insurance policy relaxes the truth-telling condition for general parameters.

Keywords: Bank runs; Deposit insurance; Sequential service (search for similar items in EconPapers)
JEL-codes: D82 G21 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165489625000496
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:136:y:2025:i:c:s0165489625000496

DOI: 10.1016/j.mathsocsci.2025.102434

Access Statistics for this article

Mathematical Social Sciences is currently edited by J.-F. Laslier

More articles in Mathematical Social Sciences from Elsevier
Bibliographic data for series maintained by Catherine Liu ().