The Effect of Implicit Deposit Insurance on Banks Portfolio Choices with an Application to International 'Overexposure'
We analyze the impact of ongoing FDIC deposit insurance practices on how banks price risk. We show that FDIC insurance generally subsidizes risky loans, and that the subsidy increases with risk. We also show that the FDIC subsidy increases if contractually uninsured deposits are insured implicitly. Implicit insurance has the perverse effect of biasing the subsidy towards loans that represent systemic risk to the banking system and may entail a tax to loans with no systemic risk. This analysis can help explain what appeared to be systematic underpricing of LDC loan risks, prior to the debt crisis.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:|
|Contact details of provider:|| Postal: 3254 Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104-6367|
Phone: (215) 898-7616
Fax: (215) 573-8084
Web page: http://finance.wharton.upenn.edu/~rlwctr/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fth:pennfi:19-86. 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: (Thomas Krichel)
If references are entirely missing, you can add them using this form.