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SUMMARY:Policy Portfolio for Banks: Deposit Insurance and Ex-post Liquidit
 y Injection - Lin Shen (Insead)
DTSTART:20240502T120000Z
DTEND:20240502T130000Z
UID:TALK205762@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:Banking crises pose significant threats to our economy\, leadi
 ng to the implementation of policy measures such as deposit insurance and 
 liquidity injection to strengthen financial stability and optimize resourc
 e allocation efficiency. This paper investigates the dynamic interplay bet
 ween deposit insurance and liquidity injection. Facing uncertainty regardi
 ng bank health and depositor liquidity shocks\, policymakers decide liquid
 ity injection based on withdrawals. While higher deposit insurance coverag
 e can mitigate panic runs\, it may undermine the effectiveness of liquidit
 y injections. We demonstrate that liquidity injection overshadows deposit 
 insurance. Consequently\, the optimal policy portfolio entails zero deposi
 t insurance\, enhancing resource allocation efficiency but leading to more
  panic runs.
LOCATION:W2.02
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