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Deposit Insurance as a Tool for Banking Supervision

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  • Christophe Morel
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    Abstract

    [eng] After reminding of the economic justifications of bank regulation, this paper pays particular attention to one of the instruments of this regulation, the deposit insurance. While offering a protection to the depositors, the deposit insurance would allow to prevent bank runs and thus reduce the occurrence probability of a systemic crisis. We present the features of such a scheme identified as « optimal » in the academic literature in the sense that they avoid moral hazard and adverse selection phenomena. Thus, ideally, the system should be public and compulsory for all banks ; the guarantee should be limited and all-in price ; the premium paid by the banks should directly depends on each bank’s risk level. . JEL Classifications : G28

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    File URL: http://dx.doi.org/doi:10.3406/ecofi.2000.4518
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    Bibliographic Info

    Article provided by Programme National Persée in its journal Revue d'économie financière (English ed.).

    Volume (Year): 60 (2000)
    Issue (Month): 5 ()
    Pages: 233-244

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    Handle: RePEc:prs:recofi:ecofi_1767-4603_2000_num_60_5_4518

    Note: DOI:10.3406/ecofi.2000.4518
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    Web page: http://www.persee.fr/web/revues/home/prescript/revue/ecofi

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    1. Ryuzo Sato & Rama V. Ramachandran & Bohyong Kang, 1990. "Risk Adjusted Deposit Insurance for Japanese Banks," NBER Working Papers 3314, National Bureau of Economic Research, Inc.
    2. Alonso, Irasema, 1996. "On avoiding bank runs," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 73-87, February.
    3. Duan, J.-C. & Simonato, J.-G., 1998. "The Estimation of Deposit Insurance with Interest Rate Risk," Ecole des Hautes Etudes Commerciales de Montreal- 98-07, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
    4. Rebel Cole & Jeffery Gunther, 1998. "Predicting Bank Failures: A Comparison of On- and Off-Site Monitoring Systems," Journal of Financial Services Research, Springer, vol. 13(2), pages 103-117, April.
    5. G. G. Garcia, 1999. "Deposit Insurance," IMF Working Papers 99/54, International Monetary Fund.
    6. Chan, Yuk-Shee & Greenbaum, Stuart I & Thakor, Anjan V, 1992. " Is Fairly Priced Deposit Insurance Possible?," Journal of Finance, American Finance Association, vol. 47(1), pages 227-45, March.
    7. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    8. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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