Deposit Insurance Without Commitment: Wall St. Versus Main St
NBER Working Paper No. 16752
This paper studies the provision of deposit insurance without commitment in an economy with heterogenous households. When households are identical, deposit insurance will be provided ex post to reap insurance gains. But the ex post provision of deposit insurance redistributes consumption when households differ in their claims on the banking system as well as in their tax obligations to ﬁnance the deposit insurance. Deposit insurance will not be provided ex post if it requires a (socially) undesirable redistribution of consumption which outweighs insurance gains.
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