The implications of risk transmission for depositor protection
The implications of risk transmission for depositor protection
This paper investigates the nature of risks faced by banks and the ways in which bank regulators seek to protect depositors. We analyse how deposit insurance, the lender of last resort function and other safety net components combine for the protection of depositors. Using a conceptual framework based on modeling deposit insurance as a contingent claim we provide insights into how liquidity risk as well as solvency risk impact the cost of providing deposit insurance. In addition we assess where these risks are transferred if depositors are fully protected from them. Our core finding is that when depositor protection measures are not fairly priced banks have the incentive to take on excessive risks
Wolfe, S.
9a2367fc-36cc-496a-bbd2-e7346bcbb19e
McKenzie, G.
8d4071a9-67fb-4784-85b1-fc34c08869e6
2009
Wolfe, S.
9a2367fc-36cc-496a-bbd2-e7346bcbb19e
McKenzie, G.
8d4071a9-67fb-4784-85b1-fc34c08869e6
Wolfe, S. and McKenzie, G.
(2009)
The implications of risk transmission for depositor protection.
16th Annual Conference Multinational Finance Society, Crete.
31 May 2009.
Record type:
Conference or Workshop Item
(Paper)
Abstract
This paper investigates the nature of risks faced by banks and the ways in which bank regulators seek to protect depositors. We analyse how deposit insurance, the lender of last resort function and other safety net components combine for the protection of depositors. Using a conceptual framework based on modeling deposit insurance as a contingent claim we provide insights into how liquidity risk as well as solvency risk impact the cost of providing deposit insurance. In addition we assess where these risks are transferred if depositors are fully protected from them. Our core finding is that when depositor protection measures are not fairly priced banks have the incentive to take on excessive risks
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Published date: 2009
Venue - Dates:
16th Annual Conference Multinational Finance Society, Crete, 2009-05-31 - 2009-05-31
Identifiers
Local EPrints ID: 71348
URI: http://eprints.soton.ac.uk/id/eprint/71348
PURE UUID: e0db3640-0d25-4aab-a44e-790273a34d57
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Date deposited: 03 Feb 2010
Last modified: 11 Dec 2021 02:58
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Author:
G. McKenzie
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