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Working Paper

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.

Keywords: Limited deposit insurance coverage; deposit rates; bank competition;

JEL Classification: G21;

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File(s): File format is application/pdf http://www.federalreserve.gov/econresdata/feds/2014/files/201499pap.pdf
Description: Full text

Authors

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2014-10-15

Number: 2014-99

Pages: 42 pages