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Capital regulation and deposit insurance |
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| Affiliation: | 1. Financial Risk Control Unit, Banca Carige, Via Cassa di Risparmio 15,16123 Genova, Italy;2. Department of Statistical Sciences, University of Bologna, Italy;3. Department of Economics, University College London, WC1E 6BT, United Kingdom;4. Institute of Fiscal Studies, United Kingdom;5. CREATES, University of Aarhus, Denmark;6. Department of Economics, University of Copenhagen, 1353 Copenhagen K, Denmark |
| Abstract: | A model of deposit insurance in which the bank closure rule can systematically deviate from the economic insolvency condition used in earlier models is developed. Simulation of that model for plausible parameter values suggests that the failure to close banks on a timely basis has a profound effect in increasing the insurer's liability. The implications of these results for capital regulation are discussed. |
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