Is Fairly Priced Deposit Insurance Possible?

  • Author(s): YUK‐SHEE CHAN, STUART I. GREENBAUM, ANJAN V. THAKOR
  • Published: Apr 30, 2012
  • Pages: 227-245
  • DOI: 10.1111/j.1540-6261.1992.tb03984.x

ABSTRACT

We analyze risk‐sensitive, incentive‐compatible deposit insurance in the presence of private information and moral hazard. Without deposit‐linked subsidies it is impossible to implement risk‐sensitive, incentive‐compatible deposit insurance pricing in a competitive, deregulated environment, except when the deposit insurer is the least risk averse agent in the economy. We establish this formally in the context of an insurance scheme in which privately informed depository institutions are offered deposit insurance premia contingent on reported capital; the result holds for alternative sorting instruments as well. This suggests a contradiction between deregulation and fairly priced, risk‐sensitive deposit insurance.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version