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Fairly Priced Deposit Insurance and Bank Charter Policy

Authors

  • ROGER CRAINE

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    • University of California, Berkeley. I thank a referee for suggestions that substantially changed the focus of this article. I also thank the editor, René Stulz, for his comments.


ABSTRACT

The thrust of current deposit insurance reform—risk-based insurance premiums and capital requirements—is an effort to price deposit insurance more fairly. Fairly pricing deposit insurance eliminates inequitable wealth transfers, but it does not lead to an efficient equilibrium. This paper shows that an alternative charter policy results in an efficient separating equilibrium.

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