Fairly Priced Deposit Insurance and Bank Charter Policy
The thrust of current deposit insurance reform--risk-based insurance premiums and capital requirements--is an effort to price deposit insurance more fairly. Fairly pricing deposit insurance eliminates inequitable wealth transfers, but it does not lead to an efficient equilibrium. This paper shows that an alternative charter policy results in an efficient separating equilibrium. The analysis provides support for the deposit insurance reform proposal in the recent NCFIRRE (1993) report to the President and Congress, and for Merton and Bodie's (1993) proposal.
|Date of creation:||30 May 1996|
|Note:||28pp; keywords: deposit insurance reform, fairly priced deposit insurance, agency cost of debt|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
References listed on IDEAS
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- Chan, Yuk-Shee & Greenbaum, Stuart I & Thakor, Anjan V, 1992.
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- Merton, Robert C. & Bodie, Zvi, 1993. "Deposit insurance reform: a functional approach," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 38(1), pages 1-34, June.
- David E. Hutchison & George G. Pennacchi, 1992. "A framework for estimating the value and interest rate risk of retail bank deposits," Working Paper Series, Issues in Financial Regulation 92-30, Federal Reserve Bank of Chicago.
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