Fair pricing of deposit insurance. Is it possible? Yes. Is it desirable? No
This note elaborates on a recent article by Chan, Greenbaum and Thakor (1992) who contend that fairly priced deposit insurance is incompatible with free competition in the banking sector, in the presence of adverse selection. We show here that at soon as one introduces a real economic motivation from private banks to manage the deposits from the public, then fairly priced deposit insurance becomes possible. However, we also show that such a fairly priced insurance is never desirable, precisely because of adverse selection. We compute the characteristics of the optimal premium schedule, which trades off between the cost of adverse selection and the cost of ``unfair competition ''.
(This abstract was borrowed from another version of this item.)
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yuk-Shee Chan & Stuart I. Greenbaum & Anjan V. Thakor, 2004.
"Is Fairly Priced Deposit Insurance Possible?,"
When requesting a correction, please mention this item's handle: RePEc:eee:reecon:v:52:y:1998:i:3:p:217-232. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.