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TAX PAYER PROVIDED SAFETY NET?
Check out the Weekend FT for a good piece on the importance of deposit insurance. Neil Collins writes about the taxpayer safety net that assists challenger banks such as Metro Bank. The writer makes an interesting point that smaller challenger banks rely heavily on the £75k deposit insurance provided gratis to the banks complements of the tax payer. He writes that: Without it, all the challengers would find life tougher, since they would have to persuade depositors that their money is safe as in the TBTF five. Similar arguments were recently made by the Centre of Policy Studies, a leading UK think tank and thought leadership organisation (see http://www.cps.org.uk/about/news/q/date/2016/01/17/the-times-call-to-scrap-75-000-depositors-safety-net/), raised the prospect that free deposit insurance creates a moral hazard, a concept well considered in the academic literature (Laeven, 2002; Barth & Levine, 2013). It does raise interesting questions about why such deposit insurance isn't priced, or better yet priced on a risk adjusted basis...
Check out the Weekend FT for a good piece on the importance of deposit insurance. Neil Collins writes about the taxpayer safety net that assists challenger banks such as Metro Bank. The writer makes an interesting point that smaller challenger banks rely heavily on the £75k deposit insurance provided gratis to the banks complements of the tax payer. He writes that: Without it, all the challengers would find life tougher, since they would have to persuade depositors that their money is safe as in the TBTF five. Similar arguments were recently made by the Centre of Policy Studies, a leading UK think tank and thought leadership organisation (see http://www.cps.org.uk/about/news/q/date/2016/01/17/the-times-call-to-scrap-75-000-depositors-safety-net/), raised the prospect that free deposit insurance creates a moral hazard, a concept well considered in the academic literature (Laeven, 2002; Barth & Levine, 2013). It does raise interesting questions about why such deposit insurance isn't priced, or better yet priced on a risk adjusted basis...
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