Dowd, K. (2000) 'Bank capital adequacy versus deposit insurance.', Journal of financial services research., 17 (1). pp. 7-15.
This paper re-evaluates the Diamond-Dybvig analysis of deposit insurance by constructing a model in which an agent not in need of liquidity sets up a financial intermediary to sell liquidity insurance to other agents who desire such insurance. This intermediary resembles a real-world bank in that it is financed by both demand deposits and equity. It also dominates the Diamond-Dybvig intermediary, which is funded only by demand deposits. Provided the intermediary has adequate capital, it also is perfectly safe. Deposit insurance then is both unnecessary and incapable of achieving a superior outcome to that which private agents could achieve on their own.
|Full text:||(VoR) Version of Record|
Download PDF (72Kb)
|Publisher Web site:||http://dx.doi.org/10.1023/A:1008149106536|
|Publisher statement:||Reprinted from Journal of Financial Services Research, 17(1), 2000, 7-15, with permission of Kluwer Law International.|
|Record Created:||03 Jun 2016 12:35|
|Last Modified:||07 Jun 2016 13:47|
|Social bookmarking:||Export: EndNote, Zotero | BibTex|
|Look up in GoogleScholar | Find in a UK Library|