Deposit Insurance and Orderly Liquidation without Commitment: Can we Sleep Well? / Russell Cooper, Hubert Kempf.

Format:

Book

Author/Creator:

Cooper, Russell.

Contributor:

National Bureau of Economic Research.

Kempf, Hubert.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19132.

NBER working paper series no. w19132

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

This paper assess the affects of the orderly liquidation of a failing bank and the ex post provision of deposit insurance on the prospect of bank runs. Assuming that the public institutions in charge of these policies lack commitment power, these interventions, both individually and jointly, are chosen and undertaken ex post. The costs of liquidation and redistribution across heterogenous households play key roles in these decisions. If investment is suffciently illiquid, a credible liquidation policy will deter runs. Deposit insurance will not be provided ex post if it requires a (socially) undesirable redistribution of consumption that outweighs insurance gains. Despite the lack of commitment, runs can be prevented by the provision of deposit insurance funded by an optimally designed ex post tax scheme.

Notes:

Print version record

June 2013.