NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Banking and Insurance

Joseph G. Haubrich, Robert G. King

NBER Working Paper No. 1312
Issued in March 1984
NBER Program(s):   EFG

This paper studies the economic role of financial institutions in economies where agents' incomes are subject to privately observable, idiosyncratic random events. The information structure precludes conventional insurance arrangements. However, a financial institution -- perhaps best viewed as a savings bank -- can provide partial insurance by generating a time pattern of deposit returns that redistributes wealth from agents with high incomes to those with low incomes, resulting in a level of expected utility higher than that achievable in simple security markets. Insurance is incomplete because the bank faces a tradeoff between provision of insurance and maintenance of private incentives.

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Document Object Identifier (DOI): 10.3386/w1312

Published: Haubrich, Joseph G. & King, Robert G., 1990. "Banking and insurance," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 361-386, December. citation courtesy of

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