Li, Gan and Wen-Yao, Wang (2010): Partial Deposit Insurance and Moral Hazard in Banking.
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Abstract: Countries with deposit insurances differ significantly on how much protection their insurance provides. We study the optimal coverage limit in a model of deposit insurance with capital requirements and risk sensitive premia to prevent moral hazard. Depositors have incentives to monitor the bank’s risk taking behavior, thus threatening banks with withdrawals of deposits if necessary. We find that either banking regulations or market discipline is insufficient to reduce bank’s risk. In addition, our numerical example explains the differences in coverage cross countries which agrees with empirical evidence. We show that low income countries provide more generous insurance protection than higher income countries.
|Item Type:||MPRA Paper|
|Original Title:||Partial Deposit Insurance and Moral Hazard in Banking|
|English Title:||Partial Deposit Insurance and Moral Hazard in Banking|
|Keywords:||Depositor’s monitoring; moral hazard; optimal coverage, partial deposit insurance.|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages
|Depositing User:||Wen-Yao Wang|
|Date Deposited:||11. Oct 2010 19:05|
|Last Modified:||14. Feb 2013 16:38|
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