Is Fairly Priced Deposit Insurance Possible?

Chan, Yuk-Shee; Greenbaum, Stuart I.; Thakor, Anjan V.

doi:10.2307/2329096

Cited by 181 publications

(77 citation statements)

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“…We now consider the case of fairly priced deposit insurance, which is the case where banks pay a deposit insurance premium that reflects their default probability. We denote this cost as C and, as is common in the literature [e.g., Chan, Greenbaum, and Thakor (1992)], we assume that the bank pays it in advance. 7 This implies that the bank needs to raise a total of 1 + C units of funds to finance the loan to the borrower, as well as to pay the insurance premium.…”

Section: Fairly Priced Deposit Insurancementioning

confidence: 99%

Credit Market Competition and Capital Regulation

2008

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Empirical evidence suggests that banks hold capital in excess of regulatory minimums. This did not prevent the financial crisis and underlines the importance of understanding bank capital determination. Market discipline is one of the forces that induces banks to hold positive capital. The literature has focused on the liability side. We develop a simple theory based on monitoring to show that discipline from the asset side can also be important. In perfectly competitive markets, banks can find it optimal to use costly capital rather than the interest rate on the loan to commit to monitoring because it allows higher borrower surplus.

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Section: Fairly Priced Deposit Insurancementioning

confidence: 99%

Credit Market Competition and Capital Regulation

2008

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“…The issues of risk-based capital requirements and risk-based deposit insurance premia are forma11y examined by Chan, Greenbaum and Thakor [1992]. They show that incentive compatibility is sacrificed if the regulator wishes lo have afairly-priced (actuarially neutral) 17 Such conclusions are a bit heroic because we do not have an adequate theory of the functioning of secondary markets for a bank's asset portfolio.…”

Section: B Risk-based Capital Requirements and Deposit Insurance Premiamentioning

confidence: 99%

The Economics of Bank Regulation

Bhattacharya¹,

Boot²,

Thakor³

1998

Journal of Money, Credit and Banking

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337

148

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“…The observation that subsidies to banks (e.g., underpriced deposit insurance) are at times efficiency-enhancing is central to the banking literature (see, e.g., Chan et al 1992, Freixas and Rochet 1998, Hellmann et al 2000, Blum 2002, Boyd et al 2002, Morrison and White 2006. Our article complements this literature by suggesting that the desirability of fair pricing of guarantees may depend on the degree of transparency of the banking sector.…”

Section: Introductionmentioning

confidence: 72%

The pricing of bank debt guarantees

Arping

2010

Economics Letters

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract We analyze the optimal pricing of government-sponsored bank debt guarantees within the context of an asset substitution framework. We show that the desirability of fair pricing of guarantees depends on the degree of transparency of the banking sector: in relatively opaque banking systems, fair pricing exacerbates banks' incentive to take excessive risks, whereas the opposite is true in relatively transparent banking systems. Terms of use: Documents in EconStor may JEL-codes: G21, G38

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Is Fairly Priced Deposit Insurance Possible?

Cited by 181 publications

References 0 publications

Credit Market Competition and Capital Regulation

Credit Market Competition and Capital Regulation

The Economics of Bank Regulation

The pricing of bank debt guarantees

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