Federal Reserve Bank of San Francisco
Working Papers in Applied Economic Theory
Fixed-premium deposit insurance and international credit crunches
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.
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Mark M. Spiegel, Fixed-premium deposit insurance and international credit crunches, Federal Reserve Bank of San Francisco, Working Papers in Applied Economic Theory 94-19, 1994.
Keywords: Deposit insurance ; Loans; Foreign
This item with handle RePEc:fip:fedfap:94-19
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