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Fixed-premium deposit insurance and international credit crunches

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  • Mark M. Spiegel

Abstract

This article introduces a monopolistically competitive model of foreign lending in which both explicit and implicit fixed-premium deposit insurance increase the degree to which bank participation in relending to problem debtors falls below its globally optimal level. This provides a channel for fixed-premium deposit insurance to inhibit credit extension in bad states, resulting in an increase in the expected default percentage and an increase in the expected burden on the deposit insurance institutions.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1996)
Issue (Month): ()
Pages: 3-15

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Handle: RePEc:fip:fedfer:y:1996:p:3-15:n:2

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Keywords: Deposit insurance ; Bank loans ; Loans; Foreign ; International finance;

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References

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  1. Kareken, John H, 1986. "Federal Bank Regulatory Policy: A Description and Some Observations," The Journal of Business, University of Chicago Press, vol. 59(1), pages 3-48, January.
  2. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  3. Duan, Jin-Chuan & Moreau, Arthur F. & Sealey, C. W., 1992. "Fixed-rate deposit insurance and risk-shifting behavior at commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(4), pages 715-742, August.
  4. Mitchell Berlin & Loretta J. Mester, 1990. "Debt covenants and renegotiation," Working Papers 90-21, Federal Reserve Bank of Philadelphia.
  5. Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
  6. James, Christopher, 1990. "Heterogeneous creditors and the market value of bank LDC loan portfolios," Journal of Monetary Economics, Elsevier, vol. 25(3), pages 325-346, June.
  7. Cornell, Bradford & Shapiro, Alan C., 1986. "The reaction of bank stock prices to the international debt crisis," Journal of Banking & Finance, Elsevier, vol. 10(1), pages 55-73, March.
  8. Jaffee, Dwight M, 1989. "Symposium on Federal Deposit Insurance for S&L Institutions," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 3-9, Fall.
  9. Spiegel, Mark M, 1992. "Concerted Lending: Did Large Banks Bear the Burden?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 465-82, November.
  10. Sharpe, Steven A., 1991. "Credit rationing, concessionary lending, and debt maturity," Journal of Banking & Finance, Elsevier, vol. 15(3), pages 581-604, June.
  11. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-97, December.
  12. Kane, Edward J, 1989. "The High Cost of Incompletely Funding the FSLIC Shortage of Explicit Capital," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 31-47, Fall.
  13. Santomero, Anthony M, 1984. "Modeling the Banking Firm: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 576-602, November.
  14. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and the World Economy, pages 225-236 National Bureau of Economic Research, Inc.
    • Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106 National Bureau of Economic Research, Inc.
  15. Diwan, Ishac & Spiegel, Mark M., 1994. "Are buybacks back? Menu-driven debt reduction schemes with heterogeneous creditors," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 279-293, October.
  16. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
  17. Penati, Alessandro & Protopapadakis, Aris, 1988. "The effect of implicit deposit insurance on banks' portfolio choices with an application to international `overexposure'," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 107-126, January.
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