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Limited Deposit Insurance Coverage and Bank Competition

Author

Listed:
  • Shy, Oz

    () (Federal Reserve Bank of Boston)

  • Stenbacka, Rune

    () (Hanken School of Economics)

  • Yankov, Vladimir

    () (Board of Governors of the Federal Reserve System (U.S.))

Abstract

Deposit insurance schemes in many countries place a limit on the coverage of deposits in each bank. However, no limits are placed on the number of accounts held with different banks. Therefore, under limited deposit insurance, some consumers open accounts with different banks to achieve higher or full deposit insurance coverage. We compare three regimes of deposit insurance: No deposit insurance, unlimited deposit insurance, and limited deposit insurance. We show that limited deposit insurance weakens competition among banks and reduces total welfare relative to no or unlimited deposit insurance.

Suggested Citation

  • Shy, Oz & Stenbacka, Rune & Yankov, Vladimir, 2014. "Limited Deposit Insurance Coverage and Bank Competition," Finance and Economics Discussion Series 2014-53, Board of Governors of the Federal Reserve System (US).
  • Handle: RePEc:fip:fedgfe:2014-53
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Limited deposit insurance coverage; deposit rates; bank competition;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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