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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa / Nimark, Kristoffer / Wang, Pengfei

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1935-1690
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Risky Collateral and Deposit Insurance

Narayana R Kocherlakota
Published Online: 2001-02-27 | DOI: https://doi.org/10.2202/1534-6013.1002

This paper provides a new rationalization for deposit insurance and systemic disintermediations. I consider an environment in which borrowers face no penalty for failing to repay obligations except the loss of their collateral. I assume that this collateral has aggregate risk. For a subset of the exogenous parameters, I demonstrate that an optimal arrangement features deposit insurance. For a strictly smaller set of parameters, it is optimal in some states of the world to have systemic distintermediations and concomitant falls in real output.

Keywords: collateral; deposit insurance; optimal contracts

About the article

Published Online: 2001-02-27


Citation Information: Advances in Macroeconomics, Volume 1, Issue 1, ISSN (Online) 1534-6013, DOI: https://doi.org/10.2202/1534-6013.1002.

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[1]
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[2]
CHARLES M. KAHN and WILLIAM ROBERDS
Journal of Money, Credit and Banking, 2009, Volume 41, Number 5, Page 855
[3]
NARAYANA R. KOCHERLAKOTA and ILHYOCK SHIM
Journal of Money, Credit and Banking, 2007, Volume 39, Number 5, Page 1107

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