Comic: NZ deposit insurance for finance companies
Posted October 15, 2008on:
Mike Moreu is on the money again! The link is here.
Why is there no haircut for the insurance? Why are the fees not linked in inherent risk?
I agree that in some countries governments need to “recapitalise” banks by buying parts of them. I agree that a deposit insurance scheme can avoid bank runs (and can do so in a way the private sector may struggle with because asymmetric information leads to “too little” insurance). However, effectively charging the safe institutions more for insurance (which is what is happening to the banks) is RIDICULOUS – and will lead to too much risk being taken on in the future, at the taxpayers expense.