Banking Policy and the Pricing of Deposit Guarantees: A New Approach

W. Perraudin and Steven Fries

No 1991/131, IMF Working Papers from International Monetary Fund

Abstract: This paper describes a new approach to pricing government deposit guarantees that uses techniques of stochastic process switching employed in the recent literature on exchange rate determination. Our model avoids inconsistent assumptions about the information available to investors and the government common in previous work based on an option pricing approach. We derive actuarially fair deposit insurance premia and optimal financial reorganization rules and examine the role of banking policies such as capital requirements.

Keywords: WP; stochastic process; stock market value; bank shareholder; audit bank; bank regulator; earnings stream; bank earnings; bank closure; Wages; Stock markets; Deposit insurance; Government liabilities; Auditing (search for similar items in EconPapers)
Pages: 22
Date: 1991-12-01
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