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Depositor-preference laws and the cost of debt capital

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Author Info

  • William P. Osterberg
  • James B. Thomson

Abstract

Under depositor-preference laws, depositors' claims on the assets of failed depository institutions are senior to unsecured general-creditor claims. As a result, depositor preference changes the capital structure of banks and thrifts, thereby affecting the cost of capital for depositories. Depositor preference has no impact on the total value of banks and thrifts, however, unless deposit insurance is mispriced.

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File URL: http://www.clevelandfed.org/Research/review/1999/99-q3-osterberg.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Cleveland in its journal Economic Review.

Volume (Year): (1999)
Issue (Month): Q III ()
Pages: 10-20

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Handle: RePEc:fip:fedcer:y:1999:i:qiii:p:10-20

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Keywords: Bank failures ; Bank capital ; Deposit insurance;

References

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  1. William P. Osterberg, 1996. "The impact of depositor preference laws," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 2-11.
  2. Chen, Andrew H, 1978. "Recent Developments in the Cost of Debt Capital," Journal of Finance, American Finance Association, vol. 33(3), pages 863-77, June.
  3. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, December.
  4. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
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Cited by:
  1. Henri Pagès & João A. C. Santos, 2003. "Optimal supervisory policies and depositor-preference laws," BIS Working Papers 131, Bank for International Settlements.
  2. Kahn, Charles M. & Santos, Joao A.C., 2005. "Allocating bank regulatory powers: Lender of last resort, deposit insurance and supervision," European Economic Review, Elsevier, vol. 49(8), pages 2107-2136, November.

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