Lessons from the U.S. Experience with Deposit Insurance
Lessons from the U.S. Experience with Deposit Insurance
In this chapter, a brief history and summary of the U.S. experience with deposit insurance is provided to highlight and understand the rationale for and performance of these varied deposit insurance plans. Three main points are emphasized throughout the chapter to better understand the U.S. experience. First, the restrictions on branching and lines of service that impede the diversification of an institution’s portfolio are greatly enlarged by the inherent fragility of a fractional reserve depository institution. Second, that bank panics and failures were more often associated with the act of separating equilibrium by depositors. On the other hand, pooling equilibrium is seen as rare, and this distinction between separation and pooling equilibrium is able to provide a new lens through which to view how deposit insurance functions.
Keywords: deposit insurance plans, fractional reserve depository institution, bank panics, equilibrium separation, equilibrium pooling, U.S. experience, deposit insurance
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