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Optimal Deposit Insurance

Author

Listed:
  • Eduardo Dávila
  • Itay Goldstein

Abstract

This paper studies the optimal determination of deposit insurance when bank runs are possible. We show that the welfare impact of changes in the level of deposit insurance coverage can be generally expressed in terms of a small number of sufficient statistics, which include the level of losses in specific scenarios and the probability of bank failure. We characterize the wedges that determine the optimal ex-ante regulation, which map to asset- and liability-side regulation. We demonstrate how to employ our framework in an application to the most recent change in coverage, which took place in 2008.

Suggested Citation

  • Eduardo Dávila & Itay Goldstein, 2021. "Optimal Deposit Insurance," NBER Working Papers 28676, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28676
    Note: CF EFG
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    File URL: http://www.nber.org/papers/w28676.pdf
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    Cited by:

    1. Kristian Blickle & Markus K. Brunnermeier & Stephan Luck, 2022. "Who Can Tell Which Banks Will Fail?," NBER Working Papers 29753, National Bureau of Economic Research, Inc.
    2. Sümeyra Atmaca & Karolin Kirschenmann & Steven Ongena & Koen Schoors, 2023. "Implicit and Explicit Deposit Insurance and Depositor Behavior," CESifo Working Paper Series 10768, CESifo.
    3. Matteo, Gatti & Tommaso, Oliviero, 2019. "Deposit Insurance and Banks’ Deposit Rates: Evidence from the 2009 EU Policy Change," Working Papers 419, University of Milano-Bicocca, Department of Economics, revised 19 Aug 2019.
    4. Nicolás de Roux & Nicola Limodio, 2023. "Deposit Insurance and Depositor Behavior: Evidence from Colombia," The Review of Financial Studies, Society for Financial Studies, vol. 36(7), pages 2721-2755.
    5. Matteo Gatti & Tommaso Oliviero, 2021. "Deposit Insurance and Banks' Deposit Rates: Evidence from the 2009 EU Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 17(2), pages 171-206, June.
    6. Oosthuizen, Dick & Zalla, Ryan, 2022. "Funding deposit insurance," Working Paper Series 2704, European Central Bank.
    7. Papageorgiou, Stylianos, 2022. "Bank levy and household risk-aversion," Journal of Banking & Finance, Elsevier, vol. 138(C).
    8. van der Kwaak, Christiaan & Madeira, João & Palma, Nuno, 2023. "The long-run effects of risk: an equilibrium approach," European Economic Review, Elsevier, vol. 153(C).
    9. Rafael Matta & Enrico Perotti, 2024. "Pay, Stay, or Delay? How to Settle a Run," The Review of Financial Studies, Society for Financial Studies, vol. 37(4), pages 1368-1407.
    10. International Association of Deposit Insurers, 2021. "Deposit Insurance Coverage Level and Scope," IADI Research Papers 21-12, International Association of Deposit Insurers.
    11. Chernykh, Lucy & Kotomin, Vladimir, 2022. "Risk-based deposit insurance, deposit rates and bank failures: Evidence from Russia," Journal of Banking & Finance, Elsevier, vol. 138(C).

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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