Private Insurance Against Systemic Crises?
AbstractInsurance contracts contingent on macroeconomic shocks or on average bank capital could be a way of insuring against systemic crises. With insurance, banks are recapitalized when negative events would otherwise cause a write down of capital or even bank insolvency. In a simple model we illustrate the working of these contracts and how insurance could be achieved. We identify the main pitfalls of this approach: the insurance capacity of an economy may be too limited, insurance must be mandatory, insurance does not curb excessive risk taking (unobservable or observable), the insurers may go bankrupt in crises, and managerial restrictions on a rising bank equity capital limit insurance. Finally we discuss some complementary regulatory measures to foster the effectiveness of crisis insurance. In particular, we suggest mandatory purchase of insurance contracts against systemic crises by managers of large banks.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7342.
Date of creation: Jun 2009
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- G2 - Financial Economics - - Financial Institutions and Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-11 (All new papers)
- NEP-BAN-2009-07-11 (Banking)
- NEP-BEC-2009-07-11 (Business Economics)
- NEP-IAS-2009-07-11 (Insurance Economics)
- NEP-REG-2009-07-11 (Regulation)
- NEP-RMG-2009-07-11 (Risk Management)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jimenez Porras, G. & Ongena, S. & Peydro, J.L. & Saurina, J., 2012. "Credit Supply versus Demand: Bank and Firm Balance-Sheet Channels in Good and Crisis Times," Discussion Paper 2012-005, Tilburg University, Center for Economic Research.
- Hans Gersbach & Volker Hahn, 2009.
CER-ETH Economics working paper series
09/107, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Cao, Jin & Illing, Gerhard, 2010.
"Regulation of Systemic Liquidity Risk,"
Discussion Papers in Economics
11306, University of Munich, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.