Professor Kevin Dowd kevin.dowd@durham.ac.uk
Professor
Bank Capital Adequacy versus Deposit Insurance
Dowd, K.
Authors
Abstract
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.
Citation
Dowd, K. (2000). Bank Capital Adequacy versus Deposit Insurance. Journal of Financial Services Research, 17(1), 7-15. https://doi.org/10.1023/a%3A1008149106536
Journal Article Type | Article |
---|---|
Publication Date | Feb 1, 2000 |
Deposit Date | Mar 7, 2013 |
Publicly Available Date | Jun 7, 2016 |
Journal | Journal of Financial Services Research |
Print ISSN | 0920-8550 |
Electronic ISSN | 1573-0735 |
Publisher | Springer |
Peer Reviewed | Peer Reviewed |
Volume | 17 |
Issue | 1 |
Pages | 7-15 |
DOI | https://doi.org/10.1023/a%3A1008149106536 |
Public URL | https://durham-repository.worktribe.com/output/1465555 |
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Copyright Statement
Reprinted from Journal of Financial Services Research, 17(1), 2000, 7-15, with permission of Kluwer Law International.
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