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Deposit insurance pricing and monetary policy transmission

Author

Listed:
  • Steve BILLON

    (LaRGE Research Center, Université de Strasbourg)

  • Natalia ANDRIES

    (ERUDITE, Université Paris-Est)

Abstract

This paper provides a theoretical model that examines the effect of deposit insurance pricing on monetary policy transmission. An increase in the key policy rate benefits bank deposits when the deposit insurance premium is lower than the fair value. This leads firms to withdraw from the capital market and boosts their demand for bank lending. Thus, a lower than the fair value deposit insurance premium strengthens the monetary policy transmission on bond returns and bank interest rates. In contrast, a fair valuation of risks ensures the neutrality of the deposit insurance on the interest rate pass-through.

Suggested Citation

  • Steve BILLON & Natalia ANDRIES, 2023. "Deposit insurance pricing and monetary policy transmission," Working Papers of LaRGE Research Center 2023-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2023-03
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    References listed on IDEAS

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    More about this item

    Keywords

    Deposit insurance; Monetary policy transmission; Bank imperfect competition;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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