Deposit insurance and risk taking
We review the theory of deposit insurance, highlighting the underlying assumptions that were not satisfied during the recent financial crisis and that may have led to serious policy mistakes. In theoretical models, deposit insurance is mostly seen as an equilibrium selection device to avoid panic-based runs. In such a context, it is not drawn on and is thus costless and fully credible. However, if bank runs are linked to a fall in asset values, providing deposit insurance can be very costly and, as the case of Ireland has shown, can even threaten sovereign solvency. This perspective indicates a need for new research on the relation between bank failures, deposit insurance schemes, sovereign default, and currency depreciation, and for reforms of deposit insurance schemes. Copyright 2011, Oxford University Press.
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.:
- Demirguc-Kunt, Asli & Detragiache, Enrica, 1999.
"Does deposit insurance increase banking system stability ? An empirical investigation,"
Policy Research Working Paper Series
2247, The World Bank.
- Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
- Asli Demirguc-Kunt & Enrica Detragiache, 2000. "Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation," Econometric Society World Congress 2000 Contributed Papers 1751, Econometric Society.
- Chan, Yuk-Shee & Greenbaum, Stuart I & Thakor, Anjan V, 1992.
" Is Fairly Priced Deposit Insurance Possible?,"
Journal of Finance,
American Finance Association, vol. 47(1), pages 227-45, March.
- Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
- Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-92, June.
- Gorton, Gary, 1988.
"Banking Panics and Business Cycles,"
Oxford Economic Papers,
Oxford University Press, vol. 40(4), pages 751-81, December.
- Todd Keister, 2010.
"Bailouts and financial fragility,"
473, Federal Reserve Bank of New York.
- Chernykh, Lucy & Rebel, Cole, 2009.
"Does Deposit Insurance Improve Financial Intermediation? Evidence from the Russian Experiment,"
12987, University Library of Munich, Germany.
- Chernykh, Lucy & Cole, Rebel A., 2011. "Does deposit insurance improve financial intermediation? Evidence from the Russian experiment," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 388-402, February.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"This Time Is Different: Eight Centuries of Financial Folly,"
Princeton University Press,
edition 1, volume 1, number 8973.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"Varieties of Crises and Their Dates
[This Time Is Different: Eight Centuries of Financial Folly]," Introductory Chapters, Princeton University Press.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Armen Hovakimian & Edward J. Kane & Luc Laeven, 2002.
"How Country and Safety-Net Characteristics Affect Bank Risk-Shifting,"
NBER Working Papers
9322, National Bureau of Economic Research, Inc.
- Armen Hovakimian & Edward Kane & Luc Laeven, 2003. "How Country and Safety-Net Characteristics Affect Bank Risk-Shifting," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(3), pages 177-204, June.
- Hovakimian, Armen & Kane, Edward J. & Laeven, Luc, 2002. "How Country and Safety-Net Characteristics Affect Bank Risk-Shifting," CEI Working Paper Series 2002-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- Freixas, Xavier & Rochet, Jean-Charles, 1998.
"Fair pricing of deposit insurance. Is it possible? Yes. Is it desirable? No,"
Research in Economics,
Elsevier, vol. 52(3), pages 217-232, September.
- Xavier Freixas & Jean Charles Rochet, 1995. "Fair pricing of deposit insurance. Is it possible? Yes. Is it desirable? No," Economics Working Papers 130, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 1995.
- Ioannidou, Vasso P. & Penas, María Fabiana, 2010. "Deposit insurance and bank risk-taking: Evidence from internal loan ratings," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 95-115, January.
- Alan D. Morrison & Lucy White, 2004.
"Is Deposit Insurance a Good Thing, and If So, Who Should Pay for It?,"
OFRC Working Papers Series
2004fe08, Oxford Financial Research Centre.
- Morrison, Alan & White, Lucy, 2004. "Is Deposit Insurance A Good Thing, And If So, Who Should Pay for It?," CEPR Discussion Papers 4424, C.E.P.R. Discussion Papers.
- Huberto M. Ennis & Todd Keister, 2009.
"Bank Runs and Institutions: The Perils of Intervention,"
American Economic Review,
American Economic Association, vol. 99(4), pages 1588-1607, September.
- Huberto M. Ennis & Todd Keister, 2007. "Bank runs and institutions : the perils of intervention," Working Paper 07-02, Federal Reserve Bank of Richmond.
- Reint Gropp & Jukka Vesala, 2004.
"Deposit Insurance, Moral Hazard and Market Monitoring,"
Review of Finance,
European Finance Association, vol. 8(4), pages 571-602.
- Gropp, Reint & Vesala, Jukka, 2004. "Deposit insurance, moral hazard and market monitoring," Working Paper Series 0302, European Central Bank.
- Reint Gropp & Jukka M. Vesala, 2002. "Deposit insurance, moral hazard, and market monitoring," Proceedings 823, Federal Reserve Bank of Chicago.
- Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
- Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
- Gerhardt, Maria & Lannoo, Karel, 2011. "Options for reforming deposit protection schemes in the EU," ECRI Papers 4339, Centre for European Policy Studies.
- Franklin Allen & Ana Babus & Elena Carletti, 2009. "Financial Crises: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 97-116, November.
- Russell Cooper & Thomas W. Ross, 2002. "Bank Runs: Deposit Insurance and Capital Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 55-72, February.
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
When requesting a correction, please mention this item's handle: RePEc:oup:oxford:v:27:y:2011:i:3:p:464-478. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.