Limited Deposit Insurance Coverage and Bank Competition
Abstract: Deposit insurance designs in many countries place a limit on the coverage of deposits in each bank. However, no limits are placed on the number of accounts held with different banks. Therefore, under limited deposit insurance, some consumers open accounts with different banks to achieve higher or full deposit insurance coverage. We compare three regimes of deposit insurance: No deposit insurance, unlimited deposit insurance, and limited deposit insurance. We show that limited deposit insurance weakens competition among banks and reduces total welfare relative to no or unlimited deposit insurance.
JEL Classification: G21;
File format is application/pdf
Description: Full text
Part of Series: Finance and Economics Discussion Series
Publication Date: 2014-10-15
Pages: 42 pages