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Post-resolution treatment of depositors at failed banks: implications for the severity of banking crises, systemic risk, and too big to fail

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  • George G. Kaufman
  • Steven A. Seeling
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    Abstract

    Losses from bank failures have significant adverse implications for bank stakeholders, as well as for the macroeconomy. This article examines the potential sources of such losses, in particular the losses that may occur after the date a bank is failed, and makes recommendations on how to minimize these losses.

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    File URL: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/2002/2qepart3.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

    Volume (Year): (2002)
    Issue (Month): Q II ()
    Pages: 27-41

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    Handle: RePEc:fip:fedhep:y:2002:i:qii:p:27-41:n:v.26no.2

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    Related research

    Keywords: Bank failures ; Financial crises ; Deposit insurance ; Bank deposits;

    References

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    1. Demirguc-Kunt, Asli & Huizinga, Harry, 1999. "Market Discipline and Financial Safety Net Design," CEPR Discussion Papers 2311, C.E.P.R. Discussion Papers.
    2. María Soledad Martínez-Peria & Sergio Schmukler, 2002. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 5, pages 143-174 Central Bank of Chile.
    3. Thomas E. Pulkkinen & Eric S. Rosengren, 1993. "Lessons from the Rhode Island banking crisis," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 3-12.
    4. Maximilian J. B. Hall, 2001. "How good are EU deposit insurance schemes?," Proceedings 732, Federal Reserve Bank of Chicago.
    5. Martinez Peria, Maria Soledad & Schmukler, Sergio L., 1999. "Do depositors punish banks for"bad"behavior? : market discipline in Argentina, Chile, and Mexico," Policy Research Working Paper Series 2058, The World Bank.
    6. Allen N. Berger & Gregory F. Udell, 2001. "Small business credit availability and relationship lending: the importance of bank organizational structure," Finance and Economics Discussion Series 2001-36, Board of Governors of the Federal Reserve System (U.S.).
    7. Cormac O Grada & Morgan Kelly, 2000. "Market Contagion: Evidence from the Panics of 1854 and 1857," American Economic Review, American Economic Association, vol. 90(5), pages 1110-1124, December.
    8. George J. Benston & George G. Kaufman, 1998. "Deposit insurance reform in the FDIC Improvement Act: the experience to date," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-20.
    9. G. G. Garcia, 1999. "Deposit Insurance," IMF Working Papers 99/54, International Monetary Fund.
    10. Walker F. Todd, 1994. "Lessons from the collapse of three state-chartered private deposit insurance funds," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
    11. Kane, Edward J. & Min-Teh Yu, 1995. "Measuring the true profile of taxpayer losses in the S & L insurance mess," Journal of Banking & Finance, Elsevier, vol. 19(8), pages 1459-1477, November.
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    Cited by:
    1. William Bergman & Robert Bliss & Christian Johnson & George Kaufman, 2004. "Netting, financial contracts, and banks: the economic implications," Working Paper Series WP-04-02, Federal Reserve Bank of Chicago.
    2. George G. Kaufman, 2003. "A proposal for efficiently resolving out-of-the-money swap positions at large insolvent banks," Working Paper Series WP-03-01, Federal Reserve Bank of Chicago.
    3. Robert A. Eisenbeis & George G. Kaufman, 2007. "Cross-border banking: challenges for deposit insurance and financial stability in the European Union," Working Paper 2006-15, Federal Reserve Bank of Atlanta.
    4. Hoggarth, Glenn & Jackson, Patricia & Nier, Erlend, 2005. "Banking crises and the design of safety nets," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 143-159, January.
    5. DeYoung, Robert & Kowalik, Michal & Reidhill, Jack, 2013. "A theory of failed bank resolution: Technological change and political economics," Journal of Financial Stability, Elsevier, vol. 9(4), pages 612-627.
    6. George G. Kaufman, 2003. "Depositor liquidity and loss-sharing in bank failure resolutions," Working Paper Series WP-03-02, Federal Reserve Bank of Chicago.
    7. Glenn Hoggarth & Jack Reidhill & Peter Sinclair, 2004. "On the resolution of banking crises: theory and evidence," Bank of England working papers 229, Bank of England.

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