Limited deposit insurance coverage and bank competition

Oz Shy, Rune Stenbacka, Vladimir Yankov

Research output: Contribution to journalArticleScientificpeer-review

4 Citations (Scopus)

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.
Original languageEnglish
Peer-reviewed scientific journalJournal of Banking & Finance
Volume71
Issue numberOctober
Pages (from-to)95-108
Number of pages14
ISSN0378-4266
DOIs
Publication statusPublished - 2016
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Limited deposit insurance coverage
  • Deposit rates
  • Bank competition
  • Bailout cost

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