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The Evolution of the Subprime Mortgage Market

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Deposit insurance clearly introduces a different treatment of (some) bank deposits with respect to all other financial activities where saving can be allocated. It has the consequence of putting in a situation of comparative disadvantage other financial intermediaries with respect to banks, and, inside the banking sector, it favours deposit collection vis a vis other bank liabilities. Deposit protection involves a typical problem of moral hazard, providing more incentives for bank managers to undertake risks. Moreover, a moral hazard problem affects also depositors’ behaviour: by relying on the full reimbursement of their deposits’ nominal value, they have no interest...
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The Evolution of the Subprime Mortgage Market

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