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Deposit Insurance as a Tool for Banking Supervision

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  • Christophe Morel

Abstract

[eng] After reminding of the economic justifications of bank regulation, this paper pays particular attention to one of the instruments of this regulation, the deposit insurance. While offering a protection to the depositors, the deposit insurance would allow to prevent bank runs and thus reduce the occurrence probability of a systemic crisis. We present the features of such a scheme identified as « optimal » in the academic literature in the sense that they avoid moral hazard and adverse selection phenomena. Thus, ideally, the system should be public and compulsory for all banks ; the guarantee should be limited and all-in price ; the premium paid by the banks should directly depends on each bank’s risk level. . JEL Classifications : G28

Suggested Citation

  • Christophe Morel, 2000. "Deposit Insurance as a Tool for Banking Supervision," Revue d'Économie Financière, Programme National Persée, vol. 60(5), pages 233-244.
  • Handle: RePEc:prs:recofi:ecofi_1767-4603_2000_num_60_5_4518
    Note: DOI:10.3406/ecofi.2000.4518
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    File URL: https://www.persee.fr/doc/ecofi_1767-4603_2000_num_60_5_4518
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    References listed on IDEAS

    as
    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    2. Ryuzo Sato & Rama V. Ramachandran & Bohyong Kang, 1990. "Risk Adjusted Deposit Insurance for Japanese Banks," NBER Working Papers 3314, National Bureau of Economic Research, Inc.
    3. Alonso, Irasema, 1996. "On avoiding bank runs," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 73-87, February.
    4. Duan, J.-C. & Simonato, J.-G., 1998. "The Estimation of Deposit Insurance with Interest Rate Risk," Ecole des Hautes Etudes Commerciales de Montreal- 98-07, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
    5. Rebel Cole & Jeffery Gunther, 1998. "Predicting Bank Failures: A Comparison of On- and Off-Site Monitoring Systems," Journal of Financial Services Research, Springer;Western Finance Association, vol. 13(2), pages 103-117, April.
    6. G. G. Garcia, 1999. "Deposit Insurance; A Survey of Actual and Best Practices," IMF Working Papers 99/54, International Monetary Fund.
    7. 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 227-245, March.
    8. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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