Fixed-premium deposit insurance and international credit crunches
Abstract: We introduce 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 institution.
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Papers in Applied Economic Theory
Publication Date: 1994