Deposit insurance pricing and monetary policy transmission

Steve Billon and Natalia Andries

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: This paper provides a theoretical model that examines the effect of deposit insurance pricing on monetary policy transmission. An increase in the key policy rate benefits bank deposits when the deposit insurance premium is lower than the fair value. This leads firms to withdraw from the capital market and boosts their demand for bank lending. Thus, a lower than the fair value deposit insurance premium strengthens the monetary policy transmission on bond returns and bank interest rates. In contrast, a fair valuation of risks ensures the neutrality of the deposit insurance on the interest rate pass-through.

Keywords: Deposit insurance; Monetary policy transmission; Bank imperfect competition (search for similar items in EconPapers)
JEL-codes: E52 G21 G22 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2023-03

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