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Limited Deposit Insurance Coverage and Bank Competition

Oz Shy (), Rune Stenbacka () and Vladimir Yankov ()
Additional contact information
Rune Stenbacka: Hanken School of Economics
Vladimir Yankov: Board of Governors of the Federal Reserve System (U.S.), http://www.federalreserve.gov/econresdata/vladimir-l-yankov.htm

No 2014-53, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)

Abstract: Deposit insurance schemes 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 (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-com and nep-ias
Date: 2014-08-06
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http://www.federalreserve.gov/pubs/feds/2014/201453/201453pap.pdf Full text (application/pdf)

Related works:
Journal Article: Limited deposit insurance coverage and bank competition (2016) Downloads
Working Paper: Limited Deposit Insurance Coverage and Bank Competition (2014) Downloads
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