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Making depositors’ insurance effectively unlimited so long as it’s below the T-bill rate would probably reduce incentives around liquidity, right? It would be
by woodruffw 4y ago
Making depositors’ insurance effectively unlimited so long as it’s below the T-bill rate would probably reduce incentives around liquidity, right?
It would be interesting to read policy or study papers on ideas like this; I don’t have especially strong intuitions for how they’d play out.
- curiousllama 4y agoIf the bank collapses, you get wiped out. Incentive for the banker is the same. Incentive for the depositor shifts assuming perfect information. But in practice, information asymmetry makes depositor preference insensitive to bank risk, regardless of insurance. This would just be an acknowledgement “we’re always gonna have to do it for the big guys, might as well make it fair for the little guys too”