Report
1005
Number
Jan 01 1993

Implementing a Private-Federal Deposit Insurance Partnership

In his first monograph, Implementing a Private-Federal Deposit Insurance Partnership, Professor Edward Kane examined the issue of “How to design a deposit insurance system that effectively monitors and polices risk-taking by credit unions and still allows them flexibility to expand and adapt to changing financial conditions.”

In the second monograph, Professor Kane and his co-authors develop the details involved in implementing a plan that establishes a partnership between the federal insurer and one or more private insurers of credit union deposits. This partnership integrates the timeliness and greater accountability of private management with the deep pocket, back-up protection of federal guarantees against catastrophic losses. Direct involvement of government officials in controlling the operations of credit unions is reduced. During a managed transition, progressively stronger components of market-driven decision making are gradually introduced into the system. This partnership plan is constructed with full knowledge of how and why other private deposit insurance systems failed. Structural protections are incorporated into this plan to avoid the flawed incentives that ruined previous private systems.

Report Number 1005