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A Positive Analysis of Deposit Insurance Provision: Regulatory Competition Among European Union Countries

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  • Merwan Engineer

    (University of Victoria, Canada)

  • Paul Schure

    (University of Victoria, Canada)

  • Mark Gillis

    (Commonwealth Bank of Australia, Australia)

Abstract

We consider the provision of deposit insurance as the outcome of a non-cooperative policy game between nations. Nations compete for deposits in order to protect their banking systems from the destabilizing impact of potential capital flight. Policies are chosen to attract depositors who optimally respond to the expected return to deposits, which depends on both stability and deposit insurance levels. We identify both defensive and beggar-thy-neighbour policies. The model sheds light on the European banking crisis of 2008 in which individual nations ratcheted up their deposit insurance levels.

Suggested Citation

  • Merwan Engineer & Paul Schure & Mark Gillis, 2012. "A Positive Analysis of Deposit Insurance Provision: Regulatory Competition Among European Union Countries," Working Paper series 29_12, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:29_12
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Gaganis, Chrysovalantis & Hasan, Iftekhar & Pasiouras, Fotios, 2016. "Regulations, institutions and income smoothing by managing technical reserves: International evidence from the insurance industry," Omega, Elsevier, vol. 59(PA), pages 113-129.
    2. repec:zbw:bofrdp:urn:nbn:fi:bof-201504131153 is not listed on IDEAS
    3. Boyer, Pierre C. & Kempf, Hubert, 2020. "Regulatory arbitrage and the efficiency of banking regulation," Journal of Financial Intermediation, Elsevier, vol. 41(C).
    4. Michael G. Arghyrou & Maria Dolores Gadea, 2019. "Private bank deposits and macro/fiscal risk in the euro-area," CESifo Working Paper Series 7532, CESifo.
    5. repec:bof:bofrdp:urn:nbn:fi:bof-201508181354 is not listed on IDEAS
    6. Catherine Mathieu & Henri Sterdyniak, 2019. "Economic Policies in the Euro Area after the Crisis," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(HS), pages 5-10.
    7. Camara, Antonio & Davidson, Travis & Fodor, Andrew, 2020. "Bank asset structure and deposit insurance pricing," Journal of Banking & Finance, Elsevier, vol. 114(C).
    8. Tóth, József, 2015. "The Financial Background of the European Deposit Guarantee Schemes and the Resolution Mechanism," MPRA Paper 64794, University Library of Munich, Germany.
    9. Näther, Maria & Vollmer, Uwe, 2019. "National versus supranational bank regulation: Gains and losses of joining a banking union," Economic Systems, Elsevier, vol. 43(1), pages 1-18.
    10. Engineer, Merwan H. & Schure, Paul & Gillis, Mark, 2013. "A positive analysis of deposit insurance provision: Regulatory competition among European Union countries," Journal of Financial Stability, Elsevier, vol. 9(4), pages 530-544.
    11. repec:hal:spmain:info:hdl:2441/7fs9bl6i6n9kgbdn581chahh2o is not listed on IDEAS
    12. Mikhail Stolbov, 2015. "Anatomy of international banking crises at the onset of the Great Recession," International Economics and Economic Policy, Springer, vol. 12(4), pages 553-569, October.
    13. repec:zbw:bofrdp:2015_010 is not listed on IDEAS
    14. Tóth, József, 2015. "Az európai betétbiztosítási és bankszanálási rendszerek jellemzői és azok finanszírozása [Characteristics of European deposit insurance and bank bailout systems and their financing]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 767-785.
    15. repec:zbw:bofrdp:2015_015 is not listed on IDEAS
    16. Gaganis, Chrysovalantis & Hasan, Iftekhar & Pasiouras, Fotios, 2016. "Regulations, institutions and income smoothing by managing technical reserves: International evidence from the insurance industry," Omega, Elsevier, vol. 59(PA), pages 113-129.
    17. repec:zbw:bofrdp:urn:nbn:fi:bof-201508181354 is not listed on IDEAS
    18. Kyle D. Allen & Travis R. Davidson & Scott E. Hein & Matthew D. Whitledge, 2018. "Dodd–Frank’s federal deposit insurance reform," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(4), pages 271-286, November.
    19. Kiema, Ilkka & Jokivuolle, Esa, 2015. "Why are bank runs sometimes partial?," Research Discussion Papers 10/2015, Bank of Finland.
    20. Chen, Wang & Zhang, Zhiwen & Hamori, Shigeyuki & Kinkyo, Takuji, 2021. "Not all bank systemic risks are alike: Deposit insurance and bank risk revisited," International Review of Financial Analysis, Elsevier, vol. 77(C).
    21. repec:bof:bofrdp:urn:nbn:fi:bof-201504131153 is not listed on IDEAS
    22. Kiema, Ilkka & Jokivuolle, Esa, 2015. "Why are bank runs sometimes partial?," Bank of Finland Research Discussion Papers 10/2015, Bank of Finland.
    23. Daniel Gros & Dirk Schoenmaker, 2014. "European Deposit Insurance and Resolution in the Banking Union," Journal of Common Market Studies, Wiley Blackwell, vol. 52(3), pages 529-546, May.
    24. Eichengreen, Barry, 2015. "How the euro crisis ends: Not with a bang but a whimper," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 415-422.

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    More about this item

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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