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Deposit Insurance And Moral Hazard: Evidence From Texas Banking In The 1920s

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  • Hooks, Linda M.
  • Robinson, Kenneth J.

Abstract

Using recently collected examination data from a sample of Texas state-chartered banks over the period 1919 1926, the role of moral hazard in increasing ex-ante asset risk is explored. Analyzing individual bank-level data, we find that the existence of deposit insurance for state-chartered banks increased their likelihood of failure. Increases in loan concentrations followed declines in capitalization at insured state banks. However, we find no statistically significant relationship between loan concentrations and capitalization at uninsured national banks or at state banks before the introduction of deposit insurance. These results show a moral-hazard effect at work.

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Bibliographic Info

Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 62 (2002)
Issue (Month): 03 (September)
Pages: 833-853

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Handle: RePEc:cup:jechis:v:62:y:2002:i:03:p:833-853_00

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Cited by:
  1. Opiela, Timothy P., 2004. "Was there an implicit full guarantee at financial institutions in Thailand? Evidence of risk pricing by depositors," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 519-541, September.
  2. Brahim Guizani & Wako Watanabe, 2010. "The Deposit Insurance and the Risk-Shifting Incentive Evidence from the Blanket Deposit Insurance in Japan," Keio/Kyoto Joint Global COE Discussion Paper Series 2010-004, Keio/Kyoto Joint Global COE Program.
  3. Kariastanto, Bayu, 2011. "Blanket guarantee, deposit insurance, and risk-shifting incentive: evidence from Indonesia," MPRA Paper 35557, University Library of Munich, Germany.
  4. Imai, Masami, 2006. "Market discipline and deposit insurance reform in Japan," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3433-3452, December.

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