| Recently, there have been numerous banking crises around the world. Some of the works in this area highlight deposit insurance as a major culprit. My dissertation, consisting of three essays, addresses this issue and related ones.; Essay One uses a general equilibrium model to study deposit insurance in a small open economy. I show that deposit insurance pricing affects agents' behavior and welfare, and that giving substantial subsidies to the banking system is not necessarily bad. It also makes a substantial difference to social welfare and the stability of banking system whether or not deposit insurance is offered to foreign depositors. The paper gives many interesting policy implications. The FDIC has a “limited” ability to maintain “good” equilibria, the scope of which depends partially on whether or not foreigners get insured.; Essay Two uses a similar model to see the impacts of different deposit insurance pricing in a closed economy. The model now has two types of bank differentiated by monitoring technologies, which introduces a new moral hazard problem. Some of the main findings are: (1) within a relatively broad class of deposit insurance pricing schemes, policy doesn't matter very much for welfare, (2) when there exist multiple equilibria, the deposit insurer can dictate which equilibrium is attained, (3) the criterion of fair deposit insurance pricing improves the deposit insurer's performance, and (4) increased monitoring is needed to handle the new moral hazard problem.; Essay Three is an empirical investigation into the causes and impacts of banking crises. Using a data set involving 53 banking crises worldwide, it relates a severity measure of crises to their impacts on various economic variables including real GDP, inflation, real equity returns, and real interest rates. The results show that: (1) the bigger the banking crisis, the bigger its negative impact on real GDP during crisis years, (2) inflation seems to be a main cause of recurring crises, and (3) the economic consequences of banking crises are markedly different, depending upon whether a country has experienced a single, or multiple crises. |
