Fairly Priced Deposit Insurance, Incentive Compatible Regulations, and Bank Asset Choices

Suk Heun Yoon and Sumon C. Mazumdar
Additional contact information
Suk Heun Yoon: Coal Central Building, Korea Institute of Finance, Fifth Floor, 80.6 Soosong-dong, Chongro-ku 110-140 Seoul Korea
Sumon C. Mazumdar: Faculty of Management, McGill University, 1001 Sherbrooke St. West, H3A 1G5 Montreal, Quebec, Canada

The Geneva Risk and Insurance Review, 1996, vol. 21, issue 1, 123-141

Abstract: This article provides incentive compatible regulations that support fairly priced deposit insurance in a competitive banking industry. If informational asymmetry exists between the regulator and banks regarding loan quality, but the regulator can observe actual loan rates charged, then imposing a capital requirement schedule that leads market loan rates to decrease in loan quality is shown to be incentive compatible. Competition in the loan market induces banks to be indifferent to all loans that satisfy a minimum acceptable quality and reject all riskier loans. The regulator could reduce the banking industry's riskiness by imposing stricter capital requirements that increase this minimum quality. The Geneva Papers on Risk and Insurance Theory (1996) 21, 123–141. doi:10.1007/BF00949053

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v21/n1/pdf/grir199681a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v21/n1/full/grir199681a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

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:pal:genrir:v:21:y:1996:i:1:p:123-141

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().