New deposit insurance system could prevent widespread bank failures
The article discusses how deposit insurance premiums should be structured to account for systemic risk in the banking industry. The researchers argue that the level of systemic risk in the financial sector should determine the amount of these premiums. When banks with insured deposits fail, the deposit insurance fund takes over and sells them, but during widespread bank failures, selling failed banks becomes challenging. Therefore, adjusting deposit insurance premiums based on systemic risk can lead to more efficient regulation.