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Limited deposit insurance coverage and bank competition

Oz Shy, Rune Stenbacka and Vladimir Yankov

Journal of Banking & Finance, 2016, vol. 71, issue C, 95-108

Abstract: Deposit insurance designs in many countries place a limit on the coverage of deposits in each bank. However, no limits are placed on the number of accounts held with different banks. Therefore, under limited deposit insurance, some consumers open accounts with different banks to achieve higher or full deposit insurance coverage. We compare three regimes of deposit insurance: no deposit insurance, unlimited deposit insurance, and limited deposit insurance. We show that limited deposit insurance weakens competition among banks and reduces total welfare relative to no or unlimited deposit insurance.

Keywords: Limited deposit insurance coverage; Deposit rates; Bank competition; Bailout cost (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Limited Deposit Insurance Coverage and Bank Competition (2014) Downloads
Working Paper: Limited Deposit Insurance Coverage and Bank Competition (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:71:y:2016:i:c:p:95-108

DOI: 10.1016/j.jbankfin.2016.05.002

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