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Deposit Insurance and the Discount Window: Pricing under Asymmetric Information
Author(s) -
KANATAS GEORGE
Publication year - 1986
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1986.tb05047.x
Subject(s) - business , incentive , window (computing) , asset (computer security) , private information retrieval , stochastic discount factor , deposit insurance , finance , actuarial science , capital asset pricing model , economics , microeconomics , computer science , computer security , operating system
The risk‐sensitive pricing of deposit insurance and the discount window is determined in an environment where banks have private information concerning their financial conditions. The two facilities are managed jointly; an incentive‐compatible policy is designed such that banks' choice of terms at which they can obtain insurance and access to discount window credit will reveal their asset quality. The function of the discount window is to be a risk‐neutral “lender of last resort” to banks in a market dominated by risk‐averse depositors.