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On the Optimality of the Deposit Insurance Premium

Author

Listed:
  • Wilfredo L Maldonado
  • Wesley Augusto de Freitas Borges
  • Rodrigo De Losso

Abstract

This paper proposes a methodology for determining the optimal insurance premium (IP) on bank deposits charged by a Deposit Insurer (DI). To this end, we define a simple economy composed of a representative consumer/lender, a firm/borrower, a financial intermediary (bank), and a DI that partially insures the lenders’ deposits. The equilibrium of this economy is parameterized by the IP rate, and its optimal value is the one that maximizes economic welfare. The equilibrium condition also provides a simple, testable relationship between interest rates and insurance premium rates. Finally, we conduct empirical exercises to analyze how the optimal IP rate responds to changes in the fundamental parameters of the model.

Suggested Citation

  • Wilfredo L Maldonado & Wesley Augusto de Freitas Borges & Rodrigo De Losso, 2025. "On the Optimality of the Deposit Insurance Premium," Working Papers, Department of Economics 2025_04, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2025wpecon4
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    File URL: http://www.repec.eae.fea.usp.br/documentos/Maldonado_Borges_De-Losso_04WP.pdf
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    More about this item

    Keywords

    Bank deposit insurance; capital intermediation; default coverage;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G52 - Financial Economics - - Household Finance - - - Insurance

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