Pricing Full Deposit Insurance in Germany amidst the Financial Crisis 2008-2010
AbstractThis paper investigates the pricing of full deposit insurance in Germany in the context of its political promise by the German government. We implement the characteristics of the mutual guarantee framework of German banks and the specifics of the German deposit insurance system into a Monte Carlo model. The analysis suggests that banks have an incentive to increase their riskiness if they do not have to bear the fair value of the insurance costs of their deposits. On the other hand, the government should incentivise banks to reduce their size and become more specialized to achieve better diversification in the German banking landscape.
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Bibliographic InfoPaper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 143.
Length: 23 pages
Date of creation: May 2011
Date of revision:
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Asset pricing; financial crisis; deposit insurance; mutual guarantee framework;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-08 (All new papers)
- NEP-BAN-2012-03-08 (Banking)
- NEP-CBA-2012-03-08 (Central Banking)
- NEP-IAS-2012-03-08 (Insurance Economics)
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