Deposit Insurance and Moral Hazard: Capital, Risk, Malfeasance, and Mismanagement
Hooks and Robinson (2002) argue that deposit insurance in Texas during the 1920s induced banks to invest in riskier assets. Their regressions indicate that this manifestation of moral hazard may explain some of what happened, but not all. Some other mechanism, hitherto overlooked, must also have been at work. A more complete interpretation of what happened recognizes that deposit insurance induced moral hazard of many types. Depositors grew lax in monitoring the safety and soundness of banks. Bankers took advantage of the lack of supervision and advanced their own interests â€“ via malfeasance or mismanagement â€“ at depositorsâ€™ expense. Bankers reduced reserve holdings and operated with lower levels of capital. All of these manifestations of moral hazard are consistent with the Hooksâ€™ and Robinsonâ€™s regressions. Data drawn from the archives of the Board of Governors highlights the role of malfeasance and mismanagement. In sum, many manifestations of moral hazard afflicted banks in Texas during the 1920s.
Volume (Year): 4 (2007)
Issue (Month): 3 (September)
|Contact details of provider:|| Postal: Enterprise Hall, Room 354, 4400 University Drive, 3G4 Fairfax, VA 22030|
Phone: (703) 993-1151
Web page: https://econjwatch.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ejw:journl:v:4:y:2007:i:3:p:296-302. 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: (Jason Briggeman)
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.