Abstract
This paper examines the hypothesis that CD issue yields of Australian banks incorporate a premium that reflects bank risk. Our empirical analysis of Australian banks’ CD premiums suggests the data is consistent with this hypothesis and hence supports the view that CD holders do not perceive their deposits as being risk‐free. Nor do we find any statistically significant difference between the premiums paid by private banks with implicit deposit insurance vis‐a‐vis those paid by government‐owned banks with explicit government guarantees.
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