The Review of Corporate Finance Studies Vol. 12 No. 2 2023

Deposit Insurance Premiums and Bank Risk

Edward T Kim¹; Marcelo Rezende²

¹ UCLA Anderson School of Management , USA · ² Board of Governors of the Federal Reserve System , USA

Abstract

Deposit insurance premiums impose costs on banks’ balance sheets, narrowing profit margins and inducing banks to “search for yield.” This paper estimates the effects of deposit insurance premiums on bank portfolio rebalancing using supervisory data and a kink in the insurance premium schedule. We show that deposit insurance premiums weaken banks’ demand for reserves (a liquid asset with no credit risk) and strengthen the supply of short-term interbank loans (a less liquid asset with credit risk). We discuss the implications of these findings for optimal deposit insurance pricing.

DOI

10.1093/rcfs/cfad004

Volume

12

Issue

2

Pages

291-325

Language

en

Sources

bibtex:phds-export.bib openalex crossref

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