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Deposit insurance in theory and practice

Deposit insurance in theory and practice Having been hailed as the most important contribution to stabilising the US financial system after the 192933 crash, deposit insurance is now being blamed for financial destabilisation, particularly in emerging markets. This paper focuses on the relationship between deposit insurance and systemic stability in the banking system, drawing on recent experience in the USA, Europe and Japan. The conclusion is that if there is an embedded perception that in the last resort depositors will be protected beyond insurance limits then marketorientated solution to the problems of moral hazard and excessive risk taking cannot work. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Regulation and Compliance Emerald Publishing

Deposit insurance in theory and practice

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1358-1988
DOI
10.1108/eb025029
Publisher site
See Article on Publisher Site

Abstract

Having been hailed as the most important contribution to stabilising the US financial system after the 192933 crash, deposit insurance is now being blamed for financial destabilisation, particularly in emerging markets. This paper focuses on the relationship between deposit insurance and systemic stability in the banking system, drawing on recent experience in the USA, Europe and Japan. The conclusion is that if there is an embedded perception that in the last resort depositors will be protected beyond insurance limits then marketorientated solution to the problems of moral hazard and excessive risk taking cannot work.

Journal

Journal of Financial Regulation and ComplianceEmerald Publishing

Published: Jan 1, 2000

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