Discussion Paper

No. 2009-21 | April 07, 2009
Is this Risk Insurable? A Response to Sebastian Schich

Abstract

In his paper “Challenges Associated with the Expansion of Deposit Insurance Coverage during Fall 2008” Sebastian Schich of the OECD has written an excellent overview of the current situation of bank deposit insurance in the industrial economies of the world. He finds that, facing a crisis of confidence leading to visible bank runs, bank supervisors nearly everywhere resorted to raising deposit insurance limits, in some cases to “unlimited” status. Some of these changes have limitations of scope or duration, but some of the political changes of recent years (expansion of the European Union, for example) call into question whether any limits will be observed or whether recently granted expansions of deposit insurance will be recalled in due time. There are, however, important lessons to be learned from the American experience with deposit insurance, which has been present in the United States since 1933 but only in recent decades in numerous other developed economies. Alternatives to deposit insurance do exist and still could be tried anywhere, taking regional differences into account, as long as an adequate institutional structure is in place first. In any case, the alternatives would be cheaper and more efficient than the fairly explicit subsidy of the banking industry that present systems of deposit insurance entail.

JEL Classification

E61 G22

Cite As

Walker F. Todd (2009). Is this Risk Insurable? A Response to Sebastian Schich. Economics Discussion Papers, No 2009-21, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2009-21

Assessment



Comments and Questions


Anonymous - Referee Report
May 04, 2009 - 10:45

see attached file


Anonymous - Referee Report
May 04, 2009 - 10:46

see attached file