Fixed-premium deposit insurance and international credit crunches

Mark Spiegel

Economic Review, 1996, 3-15

Abstract: This article introduces a monopolistically competitive model of foreign lending in which both explicit and implicit fixed-premium deposit insurance increase the degree to which bank participation in relending to problem debtors falls below its globally optimal level. This provides a channel for fixed-premium deposit insurance to inhibit credit extension in bad states, resulting in an increase in the expected default percentage and an increase in the expected burden on the deposit insurance institutions.

Keywords: Deposit insurance; Bank loans; Loans, Foreign; International finance (search for similar items in EconPapers)
Date: 1996
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Working Paper: Fixed-premium deposit insurance and international credit crunches (1994)
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