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Fixed-premium deposit insurance and international credit crunches

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  • Mark M. Spiegel

Abstract

This article introduces a monopolistically competitive model of foreign lending in which both explicit and implicit fixed-premium deposit insurance increase the degree to which bank participation in relending to problem debtors falls below its globally optimal level. This provides a channel for fixed-premium deposit insurance to inhibit credit extension in bad states, resulting in an increase in the expected default percentage and an increase in the expected burden on the deposit insurance institutions.

Suggested Citation

  • Mark M. Spiegel, 1996. "Fixed-premium deposit insurance and international credit crunches," Economic Review, Federal Reserve Bank of San Francisco, pages 3-15.
    • Handle: RePEc:fip:fedfer:y:1996:p:3-15:n:2
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    References listed on IDEAS

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    1. Spiegel, Mark M, 1992. "Concerted Lending: Did Large Banks Bear the Burden?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 465-482, November.
    2. Diwan, Ishac & Spiegel, Mark M., 1994. "Are buybacks back? Menu-driven debt reduction schemes with heterogeneous creditors," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 279-293, October.
    3. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-178, February.
    4. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
    5. Penati, Alessandro & Protopapadakis, Aris, 1988. "The effect of implicit deposit insurance on banks' portfolio choices with an application to international `overexposure'," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 107-126, January.
    6. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-1097, December.
    7. Sharpe, Steven A., 1991. "Credit rationing, concessionary lending, and debt maturity," Journal of Banking & Finance, Elsevier, vol. 15(3), pages 581-604, June.
    8. Kane, Edward J, 1989. "The High Cost of Incompletely Funding the FSLIC Shortage of Explicit Capital," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 31-47, Fall.
    9. Duan, Jin-Chuan & Moreau, Arthur F. & Sealey, C. W., 1992. "Fixed-rate deposit insurance and risk-shifting behavior at commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(4), pages 715-742, August.
    10. Santomero, Anthony M, 1984. "Modeling the Banking Firm: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 576-602, November.
    11. Diwan, Ishac & Spiegel, Mark M., 1994. "Are buybacks back? Menu-driven debt reduction schemes with heterogeneous creditors," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 279-293, October.
    12. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106, National Bureau of Economic Research, Inc.
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    16. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
    17. Jaffee, Dwight M, 1989. "Symposium on Federal Deposit Insurance for S&L Institutions," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 3-9, Fall.
    18. Kareken, John H, 1986. "Federal Bank Regulatory Policy: A Description and Some Observations," The Journal of Business, University of Chicago Press, vol. 59(1), pages 3-48, January.
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    Cited by:

    1. Knorr Andreas, 1999. "Staatliche Bankenaufsicht – eine effiziente Institution?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 50(1), pages 345-370, January.

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