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Countries with deposit insurances differ significantly on how much protection their insurance provides. We study the optimal coverage limit in a model of deposit insurance with capital requirements and risk sensitive premia to prevent moral hazard. Depositors have incentives to monitor the bank's risk taking behavior, thus threatening banks with withdrawals of deposits if necessary. We find that either banking regulations or market discipline is insufficient to reduce bank's risk. In addition,doi:10.1108/10569211311301411 fatcat:khr4gqiyfvec7pqsx3pcnqzgl4