A fixed-rate deposit insurance system provides a moral hazard for excessive risk taking and is not viable absent … regulation. Although the deposit insurance system appears to have worked remarkably well over most of its 50-year history, major … turn, caused banks to- increase default risk through increases. in asset risk and reductions in capital. This hypothesis is …

probability of bank failure and the risk exposure of the deposit insurance fund. On the other hand, the utility … asset risk and can increase the probability of bank failure. ; In this paper, we show that this seeming inconsistency stems … of deposit insurance on the bank's opportunity set. As a result, the models commonly used in the utility …