Date: Tuesday, 17 October 2023, at 12:15 pm
Venue: Room Dono Giannessi, DEM
Speaker: Russell Cooper (European University Instituite)
Title: “Credible Deposit Insurance with Caps: Does it Prevent Runs?”
Abstract:
This paper studies the impact of a deposit insurance cap on bank fragility. This is a prominent policy issue given the experiences associated with the SVB run. There are two key dimensions of deposit insurance. First, it is capped, providing a maximal amount of coverage, as seen in deposit insurance schemes worldwide. Second, it must be credible: governments must have an ex post incentive to fulfill its promises.
These two features interact: the cap limits the redistribution from poor to rich inherent in deposit insurance and thus makes it more credible. But the cap that makes DI credible, might be insufficient to prevent runs. The paper provides conditions for the provision of credible deposit insurance with caps such that runs are avoided.
Seminar organizers: Pietro Battiston
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