How can risk taking be reduced by tying ex post performance of the bank and the deposit insurance premia that it has to pay?
A) Insurance premium is fixed at some fraction of total deposits unless the bank's rate of return on equity in the preceding accounting period exceeds a prespecified threshold.
B) Insurance premium is fixed at some fraction of total deposits for those banks with a return on equity in the preceding accounting period greater than a prespecified threshold.
C) Insurance premium is fixed at some fraction of insured deposits and collected at the start of the period, but the insurer has the option to return that premium in exchange for a prespecified fraction of the bank's net income.
D) a and c
E) b and c
Correct Answer:
Verified
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