Does Corporate Governance Matter in Deposit Insurance? Di and Moral Hazard in Joint Stock and Mutual Financial Intermediaries

CIRPEE Working Paper No. 0206

24 Pages Posted: 7 Mar 2003

See all articles by Klaus P. Fischer

Klaus P. Fischer

affiliation not provided to SSRN

Eric M. Fournier

Université Laval - Faculté des Sciences de l'Administration

Date Written: October 2002

Abstract

In this paper, we analyze the differences of effects of a deposit insurance schemes on financial cooperative and joint stock banks risk taking. We develop a methodology which includes the specifics of the utility function for the financial cooperative and we compare the results to a similar profit maximizing joint stock bank. We find that the introduction of deposit insurance does in fact increase optimal risk level for the financial cooperative but less so than the stock bank. Thus, corporate governance does matter in the level of risk exposure of a deposit insurance scheme. Further, like in joint stock banks, this moral hazard can be curbed through incentives such as risk adjusted premias, risk adjusted regulatory capital and possibly reserve requirements.

Keywords: Deposit Insurance, Moral hazard, Financial cooperatives, Credit unions

JEL Classification: L3, G21, G22, G28

Suggested Citation

Fischer, Klaus P. and Fournier, Eric Michel, Does Corporate Governance Matter in Deposit Insurance? Di and Moral Hazard in Joint Stock and Mutual Financial Intermediaries (October 2002). CIRPEE Working Paper No. 0206. Available at SSRN: https://ssrn.com/abstract=350660 or http://dx.doi.org/10.2139/ssrn.350660

Klaus P. Fischer (Contact Author)

affiliation not provided to SSRN

Eric Michel Fournier

Université Laval - Faculté des Sciences de l'Administration ( email )

Quebec G1K 7P4
Canada
450 441 3003, Ext 3510 (Phone)

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