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Preventing Banking Crises--with Private Insurance?

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  • Hans Gersbach

Abstract

In this article, we review the functioning of private insurance against banking crises and identify its potential. The essential idea is that banks are recapitalized by private investors when negative events would otherwise cause a write-down of capital--or even bank insolvency. There are two modes of private insurance: pure insurance contracts and contingent debt contracts. In the former, funding of banks and insurance are separated, whereas in the latter, debt holders provide insurance. We summarize the main insights regarding the potential and limits of private insurance. We also discuss how such crisis insurance could be strengthened through complementary regulatory measures. Finally, we outline the overall pecking order of buffers and insurance for banking systems. (JEL codes: D41, E4, G2) Copyright The Author 2013. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

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  • Hans Gersbach, 2013. "Preventing Banking Crises--with Private Insurance?," CESifo Economic Studies, CESifo Group, vol. 59(4), pages 609-627, December.
    • Handle: RePEc:oup:cesifo:v:59:y:2013:i:4:p:609-627
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    References listed on IDEAS

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    Cited by:

    1. Aptus, Elias & Britz, Volker & Gersbach, Hans, 2014. "On the economics of crisis contracts," CFS Working Paper Series 453, Center for Financial Studies (CFS).
    2. Mikhail S. Makushkin, 2024. "Yield Factors of Additional Tier 1 Bonds," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 5, pages 43-59, October.
    3. Philippe Oster, 2020. "Contingent Convertible bond literature review: making everything and nothing possible?," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(4), pages 343-381, December.
    4. Elias Aptus & Volker Britz & Hans Gersbach, 2020. "Crisis Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(1), pages 121-164, July.

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    More about this item

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services

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