Optimal Regulation of a Fully Insured Deposit Banking System
AbstractWe analyze risk sensitive incentive compatible deposit insurance in the presence of private information when the market value of deposit insurance can be determined using Merton's (1977) formula. We show that, under the assumption that transferring funds from taxpayers to financial institutions has a social cost, the optimal regulation combines different levels of capital requirements combined with decreasing premia on deposit insurance. On the other hand, it is never efficient to require the banks to hold riskless assets. Finally, chartering banks is necessary in order to decrease the cost of asymmetric information. Copyright 1999 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Regulatory Economics.
Volume (Year): 16 (1999)
Issue (Month): 2 (September)
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Web page: http://www.springerlink.com/link.asp?id=100298
Other versions of this item:
- Xavier Freixas & Emmanuelle Gabillon, 1996. "Optimal regulation of a fully insured deposit banking system," Economics Working Papers 175, Department of Economics and Business, Universitat Pompeu Fabra.
- Freixas, X. & Gabillon, E., 1998. "Optimal Regulation of a Fully Insured Deposit Banking System," Papers 98.506, Toulouse - GREMAQ.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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