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The Deposit Insurance and the Risk-Shifting Incentive Evidence from the Blanket Deposit Insurance in Japan

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Author Info

  • Brahim Guizani

    (Graduate School of Economics and Management, Tohoku University)

  • Wako Watanabe

    (Faculty of Business and Commerce, Keio University)

Abstract

Using the option pricing based model of the deposit insurance, for all the listed banks in Japan, we compute the actuarially fair insurance premium as well as the market value of assets and asset volatility implied by banks' stock prices. The findings based on these variables imply that banks shifted risks to the deposit insurer who charged them risk insensitive premiums. The temporary unlimited blanket coverage of all the deposits had accelerated risk-shifting before the prompt corrective action (PCA) though such acceleration of risk-shifting was prevented when PCA were in effect as the regulatory discipline discouraged banks to lever.

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File URL: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/pdf/dp/DP2010-004.pdf
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Bibliographic Info

Paper provided by Keio/Kyoto Joint Global COE Program in its series Keio/Kyoto Joint Global COE Discussion Paper Series with number 2010-004.

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Length: 38 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:kei:dpaper:2010-004

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Web page: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/
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References

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Cited by:
  1. Kariastanto, Bayu, 2011. "Blanket guarantee, deposit insurance, and risk-shifting incentive: evidence from Indonesia," MPRA Paper 35557, University Library of Munich, Germany.

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