TY  - JOUR
AU  - Haubrich,Joseph G.
AU  - King,Robert G.
TI  - Banking and Insurance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1312
PY  - 1984
Y2  - March 1984
UR  - http://www.nber.org/papers/w1312
L1  - http://www.nber.org/papers/w1312.pdf
N1  - Author contact info:
Joseph G. Haubrich
Federal Reserve Bank ofCleveland
1455 East 6th Street
Cleveland, Ohio 44114
Tel: 216/579-2000
E-Mail: jhaubrich@clev.frb.org

Robert King
Department of Economics
Boston University
270 Bay State Road
Boston, MA  02215
Tel: 617/353-5941
E-Mail: rking@bu.edu
AB  - 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.
ER  -