Is Fairly Priced Deposit Insurance Possible?

Yuk-Shee Chan, Stuart I. Greenbaum and Anjan Thakor ()
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Stuart I. Greenbaum: Olin School of Business, Washington University

Finance from University Library of Munich, Germany

Abstract: We analyze risk-sensitive, incentive-compatible deposit insurance in the presence of private information and moral hazard. Without deposit-linked subsidies it is impossible to implement risk-sensitive, incentive- compatible deposit insurance pricing in a competitive, deregulared environment, except when the deposit insurer is the least risk averase agent in the economy. We establish this formally in the context of an insurance scheme in which privately informed depository institutions are offered deposit insurance premia contingent on reported capital; the result holds for alternative sorting instruments as well. This suggests a contradiction between deregulation and fairly priced, risk-sensitive deposit insurance.

JEL-codes: G (search for similar items in EconPapers)
Pages: 20 pages
Date: 2004-11-10
New Economics Papers: this item is included in nep-ias
Note: Type of Document - pdf; pages: 20
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Is Fairly Priced Deposit Insurance Possible? (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0411018

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