Limited Deposit Insurance Coverage and Bank Competition

42 Pages Posted: 10 Dec 2014

See all articles by Oz Shy

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Rune Stenbacka

Hanken School of Economics

Vladimir Yankov

Board of Governors of the Federal Reserve System

Multiple version iconThere are 5 versions of this paper

Date Written: October 15, 2014

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

Suggested Citation

Shy, Oz and Stenbacka, Rune and Yankov, Vladimir, Limited Deposit Insurance Coverage and Bank Competition (October 15, 2014). FEDS Working Paper No. 2014-99, Available at SSRN: https://ssrn.com/abstract=2534541 or http://dx.doi.org/10.2139/ssrn.2534541

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

HOME PAGE: http://www.frbatlanta.org/research/economists/shy-oz.aspx?panel=1

Rune Stenbacka

Hanken School of Economics ( email )

P.O. Box 479
Arkadiankatu 22
Helsinki, Helsinki 00101
Finland

Vladimir Yankov (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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