Challenges Associated with the Expansion of Deposit Insurance Coverage during Fall 2008
Government provision of a financial safety net for financial institutions has been a key element of the policy response to the current crisis, with governments extending existing guarantees and introducing new ones. These measures have been helpful in avoiding a further accelerated loss of confidence. But they are not costless. Like any guarantee, deposit insurance gives rise to moral hazard, especially if the coverage is unlimited. In the midst of a crisis, the immediate task is to restore confidence, and guarantees can be helpful in that respect. Nonetheless, to keep market discipline operational, it is important to specify when the extra insurance will end, and this timeline needs to be credible. To be able to establish such a timeline the root causes of the lack of confidence - that is the effects of troubled assets on financial firms' health - need to be addressed effectively. On a more fundamental level, once a government has ventured down the road of guarantee expansion, there may be a general perception that a government guarantee will always be available during crisis situations. As a consequence, other elements of the financial safety net may need to be strengthened, including the prudential and supervisory framework.
Volume (Year): 3 (2009)
Issue (Month): ()
|Contact details of provider:|| Postal: Kiellinie 66, D-24105 Kiel|
Phone: +49 431 8814-1
Fax: +49 431 8814528
Web page: http://www.economics-ejournal.org/
More information through EDIRC
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.:
- Enrique G. Mendoza & Marco E. Terrones, 2008.
"An anatomy of credit booms: evidence from macro aggregates and micro data,"
International Finance Discussion Papers
936, Board of Governors of the Federal Reserve System (U.S.).
- Marco Terrones & Enrique G. Mendoza, 2008. "An Anatomy of Credit Booms: Evidence From Macro Aggregates and Micro Data," IMF Working Papers 08/226, International Monetary Fund.
- Enrique G. Mendoza & Marco E. Terrones, 2008. "An Anatomy Of Credit Booms: Evidence From Macro Aggregates And Micro Data," NBER Working Papers 14049, National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Rogoff, Kenneth, 2008.
"Las secuelas de las crisis financieras
[The aftermath of financial crisis]," MPRA Paper 13695, University Library of Munich, Germany.
- Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," NBER Working Papers 14656, National Bureau of Economic Research, Inc.
- Reinhart, Carmen M. & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
- 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.
- Deniz Igan & Natalia T. Tamirisa, 2008. "Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe," IMF Working Papers 08/219, International Monetary Fund.
- Kane, Edward J. & Klingebiel, Daniela, 2004. "Alternatives to blanket guarantees for containing a systemic crisis," Journal of Financial Stability, Elsevier, vol. 1(1), pages 31-63, September.
- Laeven, Luc & Valencia, Fabián, 2012.
"The use of blanket guarantees in banking crises,"
Journal of International Money and Finance,
Elsevier, vol. 31(5), pages 1220-1248.
- 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.
- Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
- Sebastian Schich, 2008. "Financial crisis: Deposit insurance and related financial safety net aspects," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2008(2), pages 1-39.
- Sebastian Schich, 2008. "Financial turbulence: Some lessons regarding deposit insurance," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2008(1), pages 55-79.
- Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
- Stephen Lumpkin, 2008. "Resolutions of weak institutions: Lessons learned from previous crises," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2008(2), pages 1-42.
When requesting a correction, please mention this item's handle: RePEc:zbw:ifweej:7605. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.