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Strengthening Financial Infrastructure - Deposit Insurance and Lending of Last Resort

Editor

Listed:
  • Morten Balling

Author

Listed:
  • Richard Dale
  • Franco Bruni
  • Christian de Boissieu

Abstract

1) Deposit Insurance in Theory and Practice by Richard Dale. 2) Lending of Last Resort and Systemic Stability in the Eurozone by Christian de Boissieu and Franco Bruni. The first paper overviews theoretical arguments for and against deposit insurance, a system that can be aimed at consumer protection and/or at financial stability. But deposit protection, by reducing risk, can cause " moral hazard" , in particular in relations to institutions potentially "too-big-to-fail" . The US and Japanese experiences with deposit insurance are useful lessons for Europe as they demonstrate how badly can market participants be affected by moral hazard. The second paper discusses lending of last resort in the Eurozone. The authors support the ECB's view that this function must be confined to play a minor role and that it must be handled with 'constructive ambiguity'. However, they think explicit decisions and a clear division of responsi-bilities are needed to ensure that its role is really minor and that the ambiguity is in fact constructive. They call for euro-wide standards of supervision and for the establishment of a 'European Observatory of Systemic Risk'. They also recommend " prompt corrective action" with the authorities ready to close banks before they become insolvent, if they do not comply with their instructions to keep high capital ratios. Read together the two papers offer useful insights into the current debate about how to make the financial infrastructure of Europe more robust.

Suggested Citation

  • Richard Dale & Franco Bruni & Christian de Boissieu, 2000. "Strengthening Financial Infrastructure - Deposit Insurance and Lending of Last Resort," SUERF Studies, SUERF - The European Money and Finance Forum, number 7 edited by Morten Balling, May.
    • Handle: RePEc:erf:erfstu:7
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    References listed on IDEAS

    as
    1. Milhaupt, Curtis-J, 1999. "Japan's Experience with Deposit Insurance and Failing Banks: Implications for Financial Regulatory Design?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(2), pages 21-46, August.
    2. Giovanni, Alberto, 1993. "Central banking in a monetary union: reflections on the proposed statute of the European Central Bank," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 38(1), pages 191-230, June.
    3. Curzio Giannini, 1998. ""Enemy of None but a Common Friend of All"? An International Perspective on the Lender-of-Last-Resort Function," Temi di discussione (Economic working papers) 341, Bank of Italy, Economic Research and International Relations Area.
    4. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-560, October.
    5. Miller, Geoffrey P., 1996. "Is deposit insurance inevitable? Lessons from Argentina," International Review of Law and Economics, Elsevier, vol. 16(2), pages 211-232, June.
    6. Joe Peek & Eric S. Rosengren, 1997. "Will Legislated Early Intervention Prevent the Next Banking Crisis?," Southern Economic Journal, John Wiley & Sons, vol. 64(1), pages 268-280, July.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jean-Paul Abraham & Alexandre Lamfalussy & Jean-Claude Trichet & Robert Raymond & Franco Bruni, 2004. "European Monetary and Financial Integration: Evolution and Prospects," SUERF Studies, SUERF - The European Money and Finance Forum, number 2004/2 edited by Morten Balling, May.
    2. Kleimeier - Ros, Stefanie & Qi, Shusen & Sander, H., 2016. "Deposit Insurance in Times of Crises: Safe Haven or Regulatory Arbitrage? (RM/15/026-revised-)," Research Memorandum 026, Maastricht University, Graduate School of Business and Economics (GSBE).
    3. Paula Bongini, 2003. "The EU Experience in Financial Services Liberalization: A Model for GATS Negotiations?," SUERF Studies, SUERF - The European Money and Finance Forum, number 2003/2 edited by Morten Balling, May.
    4. Ricardo Brogi & Paolo Santella, 2004. "Two New Measures of Bankruptcy Efficiency," SUERF Studies, SUERF - The European Money and Finance Forum, number 2004/6 edited by Morten Balling, May.
    5. Thomas Dalsgaard & Jørgen Elmeskov & Cyn-Young Park, 2002. "Ongoing changes in the business cycle - evidence and causes," SUERF Studies, SUERF - The European Money and Finance Forum, number 20 edited by Morten Balling, May.
    6. Sonsoles Gallego & Alicia García Herrero & Jesús Saurina, 2002. "The Asian and European Banking Systems: The Case of Spain in the Quest for Develpoment and Stability," Working Papers 0217, Banco de España.
    7. Cem Karacadag & Michael W. Taylor, 2000. "The New Capital Adequacy Framework - Institutional Constraints and Incentive Structures," SUERF Studies, SUERF - The European Money and Finance Forum, number 8 edited by Morten Balling, May.
    8. Helmut Wagner, 2002. "Implications of Globalization for Monetary Policy," SUERF Studies, SUERF - The European Money and Finance Forum, number 17 edited by Morten Balling, May.
    9. Kleimeier, S. & Qi, S. & Sander, H., 2015. "Deposit insurance in times of crises : safe haven or regulatory arbitrage?," Research Memorandum 026, Maastricht University, Graduate School of Business and Economics (GSBE).
    10. Christian Harm, 2002. "Bank management between shareholders and regulators," SUERF Studies, SUERF - The European Money and Finance Forum, number 21 edited by Morten Balling, May.
    11. International Association of Deposit Insurers, 2011. "Cross Border Deposit Insurance Issues Raised by the Global Financial Crisis," IADI Research Papers 11-03, International Association of Deposit Insurers.
    12. Timothy H. Hannan & Steven J. Pilloff, 2005. "Will the Adoption of Basel II Encourage Increased Bank Merger Activity? Evidence from the United States," SUERF Studies, SUERF - The European Money and Finance Forum, number 2005/1 edited by Morten Balling, May.
    13. Marek Monkiewicz, 2012. "Insurance Protection Funds in the European Union—Quo Vadis?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 15(1), pages 89-106, March.
    14. M.M.G. Fase & W.F.V. Vanthoor, 2000. "The Federal Reserve System Discussed: A Comparative Analysis," SUERF Studies, SUERF - The European Money and Finance Forum, number 10 edited by Morten Balling, May.
    15. Andrew Hughes Hallett & Svend E Hougaard Jensen & Christian Richter, 2004. "Northern and Eastern Enlargement of EMU: Do Structural Reforms Matter?," SUERF Studies, SUERF - The European Money and Finance Forum, number 2004/3 edited by Morten Balling, May.
    16. Juan Sergio Lopez & Alessandra Appenini & Stefania P.S. Rossi & Roberto Di Salvo & Maria Carmela Mazzilis & Andrea Guidi, 2002. "Italian Mutual Banks: Performance, Efficiency and Mergers and Acquisitions," SUERF Studies, SUERF - The European Money and Finance Forum, number 15 edited by Morten Balling, May.
    17. Ralph Süppel, 2003. "Russia's Financial Markets Boom, Crisis and Recovery 1995-2001: Lessons for Emerging Markets Investors," SUERF Studies, SUERF - The European Money and Finance Forum, number 2003/5 edited by Morten Balling, May.
    18. Luiz Fernando de Paula, 2002. "Banking Internationalisation and the Expansion Strategies of European Banks to Brazil during the 1990s," SUERF Studies, SUERF - The European Money and Finance Forum, number 18 edited by Morten Balling, May.
    19. Jean-Paul Abraham & Peter van Dijcke, 2002. "European Financial Cross-Border Consolidation: At the crossroads in Europe? By exception, evolution or revolution?," SUERF Studies, SUERF - The European Money and Finance Forum, number 22 edited by Morten Balling, May.

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