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Fairly Priced Deposit Insurance and Bank Charter Policy

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  • Roger Craine.
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    Abstract

    The thrust of current deposit insurance reform--risk-based insurance premiums and capital requirements--is an effort to price deposit insurance more fairly. Fairly pricing deposit insurance eliminates inequitable wealth transfers, but it does not lead to an efficient equilibrium. This paper shows that an alternative charter policy results in an efficient separating equilibrium. The analysis provides support for the deposit insurance reform proposal in the recent NCFIRRE (1993) report to the President and Congress, and for Merton and Bodie's (1993) proposal.

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    File URL: http://econwpa.wustl.edu/eprints/fin/papers/9605/9605002.abs
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    Bibliographic Info

    Paper provided by University of California at Berkeley in its series Economics Working Papers with number 95-234.

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    Date of creation: 01 May 1995
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    Handle: RePEc:ucb:calbwp:95-234

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    Cited by:
    1. David Bates & Roger Craine, 1998. "Valuing the Futures Market Clearinghouse's Default Exposure During the 1987 Crash," NBER Working Papers 6505, National Bureau of Economic Research, Inc.
    2. Paul H. Kupiec & James M. O'Brien, 1998. "Deposit insurance, bank incentives, and the design of regulatory policy," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 201-211.
    3. Laeven, Luc, 2002. "Pricing of deposit insurance," Policy Research Working Paper Series 2871, The World Bank.
    4. Hyytinen, Ari & Takalo, Tuomas, 2003. "Preventing systemic crises through bank transparency," Research Discussion Papers 25/2003, Bank of Finland.
    5. Thakor, Anjan V., 1996. "The design of financial systems: An overview," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 917-948, June.
    6. George Benston & Jocelyn Evan, 2006. "Performance compensation contracts and CEOs’ incentive to shift risk to debtholders: An empirical analysis," Journal of Economics and Finance, Springer, vol. 30(1), pages 70-92, March.

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