Did the introduction of fixed-rate federal deposit insurance increase long-term bank risk-taking?
We investigate whether the introduction of fixed-price U.S. federal deposit insurance in 1933 increased the risk-taking of banks over the succeeding period. We examine 60 financial institutions and find that banks and trusts in general became more risky after the introduction of deposit insurance. However, a subset of well-performing banks appears to have reduced their risk. Deposit insurance also reduced the incentives of depositors to discriminate between ex ante weaker and stronger banks thus reducing depositor discipline in return for greater banking system stability.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Merton, Robert C., 1977.
"On the cost of deposit insurance when there are surveillance costs,"
903-77., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1978. "On the Cost of Deposit Insurance When There Are Surveillance Costs," The Journal of Business, University of Chicago Press, vol. 51(3), pages 439-52, July.
- Saunders Anthony & Wilson Berry, 1995. "If History Could Be Rerun: The Provision and Pricing of Deposit Insurance in 1933," Journal of Financial Intermediation, Elsevier, vol. 4(4), pages 396-413, October.
- Saunders, Anthony & Wilson, Berry, 1996. "Contagious Bank Runs: Evidence from the 1929-1933 Period," Journal of Financial Intermediation, Elsevier, vol. 5(4), pages 409-423, October.
- Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-53, September.
- Edward J. Kane & Berry Wilson, 1998.
"A contracting-theory intepretation of the origins of Federal deposit insurance,"
Federal Reserve Bank of Cleveland, issue Aug, pages 573-595.
- Kane, Edward J & Wilson, Berry K, 1998. "A Contracting-Theory Interpretation of the Origins of Federal Deposit Insurance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 573-95, August.
- Edward J. Kane & Berry K. Wilson, 1998. "A Contracting-Theory Interpretation of the Origins of Federal Deposit Insurance," NBER Working Papers 6451, National Bureau of Economic Research, Inc.
- Schumacher, Liliana, 2000. "Bank runs and currency run in a system without a safety net: Argentina and the 'tequila' shock," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 257-277, August.
When requesting a correction, please mention this item's handle: RePEc:eee:finsta:v:7:y:2011:i:1:p:19-25. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.