Financial Safety Nets: Reconstructing and Modeling a Policymaking Metaphor
AbstractThis paper explains that financial safety nets exist because of difficulties in enforcing contracts and shows that elements of deposit-insurance schemes differ substantially across countries. It argues that differences in the design of financial safety nets correlate significantly with differences in the informational and contracting environments of individual countries and that a country's GDP per capita is correlated with proxies for a country's level of: (1) informational transparency, (2) contract enforcement and deterrent rights, and (3) accountability for safety net officials. The analysis portrays deposit insurance as a part of a country's larger safety net and contracting environment. This means that there is no universal method for preventing and resolving banking problems and that the structure of a country's safety net should evolve over time with changes in private and government regulators' capacity for: valuing financial institutions, for disciplining risk taking and resolving insolvency promptly, and for being held accountable for how well they perform these tasks.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8224.
Date of creation: Apr 2001
Date of revision:
Publication status: published as Edward J. Kane, 2001. "Financial safety nets: reconstructing and modelling a policymaking metaphor," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 10(3), pages 237-273, September.
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Other versions of this item:
- Edward Kane, 2001. "Financial safety nets: reconstructing and modelling a policymaking metaphor," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(3), pages 237-273.
- G2 - Financial Economics - - Financial Institutions and Services
- F3 - International Economics - - International Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-04-11 (All new papers)
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