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A classroom experiment with bank equity, deposit insurance, and bailouts

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  • Denise Hazlett

Abstract

In this classroom experiment, students see how low bank equity requirements can interact with deposit insurance to encourage excessive risk-taking. The experiment fills a niche Admati and Hellwig (2013) have noted: citizens in a democracy must understand why bank owners argue for low equity requirements and why society as a whole is better off with higher requirements. Instructors can run the experiment in principles of economics courses to introduce the topics of banking and financial crisis, or in advanced courses to promote discussion of financial reform. It takes about 45 minutes to run and debrief, and requires no computerization.

Suggested Citation

  • Denise Hazlett, 2016. "A classroom experiment with bank equity, deposit insurance, and bailouts," The Journal of Economic Education, Taylor & Francis Journals, vol. 47(4), pages 317-323, October.
    • Handle: RePEc:taf:jeduce:v:47:y:2016:i:4:p:317-323
    DOI: 10.1080/00220485.2016.1213678
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    References listed on IDEAS

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    1. Roger B. Myerson, 2014. "Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig's The Bankers' New Clothes," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 197-210, March.
    2. Dieter Balkenborg & Todd Kaplan & Timothy Miller, 2011. "Teaching Bank Runs with Classroom Experiments," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(3), pages 224-242, July.
    3. Susan K. Laury & Charles A. Holt, 2000. "Classroom Games: Making Money," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 205-213, Spring.
    4. Mary Mathewes Kassis & Denise Hazlett & Jolanda E. Ygosse Battisti, 2012. "A Classroom Experiment on Banking," The Journal of Economic Education, Taylor & Francis Journals, vol. 43(2), pages 200-214, April.
    5. Sarah Pearlman & Robert P. Rebelein, 2013. "A Goldsmith Exercise for Learning Money Creation," The Journal of Economic Education, Taylor & Francis Journals, vol. 44(4), pages 372-388, October.
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