Pecchenino, Rowena A.
(1992)
Risk-based Deposit Insurance: An Incentive
Compatible Plan.
Journal of Money, Credit and Banking, 24 (4).
pp. 499-510.
ISSN 0022-2879
Abstract
DEPOSIT INSURANCE PROVIDED by the Federal Deposit Insurance
Corporation (FDIC) violates a basic principle of insurance: premiums are
not adjusted for bank risk. Thus, banks have the incentive to take on more risk,
increasing the insurer's liability but not the banks' costs (see Keeton 1984). This
incentive is heightened further by the FDIC's timidity in closing failed banks. If
uninsured depositors and other creditors were able and willing to evaluate bank risk
and demand risk-adjusted returns on investments, the incentive for risk-taking
would be weakened, since, in such a world, deposit insurance could be fairly priced
(see Thomson 1987). When asymmetric information concerning both bank risktaking
and insurer behavior characterizes the banking market [as Crane (1976);
Avery, Belton, and Goldberg (1988); Keeton and Morris (1987); and Brewer and
Lee (1986) all suggest to be the case], other remedies must be sought.'
| Item Type: |
Article
|
| Keywords: |
Risk-based; Deposit; Insurance; Incentive;
Compatible Plan; |
| Academic Unit: |
Faculty of Social Sciences > Economics, Finance and Accounting |
| Item ID: |
8521 |
| Depositing User: |
Prof. Rowena Pecchenino
|
| Date Deposited: |
26 Jul 2017 12:05 |
| Journal or Publication Title: |
Journal of Money, Credit and Banking |
| Publisher: |
Wiley |
| Refereed: |
Yes |
| URI: |
|
| Use Licence: |
This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available
here |
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