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How Do Insured Deposits Affect Bank Risk?: Evidence from the 2008 Emergency Economic Stabilization Act

  • Claudia Lambert
  • Felix Noth
  • Ulrich Schüwer
Registered author(s):

    This paper tests whether an increase in insured deposits causes banks to become more risky. We use variation introduced by the U.S. Emergency Economic Stabilization Act in October 2008, which increased the deposit insurance coverage from $100,000 to $250,000 per depositor and bank. For some banks, the amount of insured deposits increased significantly; for others, it was a minor change. Our analysis shows that the more affected banks increase their investments in risky commercial real estate loans and become more risky relative to unaffected banks following the change. This effect is most distinct for affected banks that are low capitalized.

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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.433980.de/dp1347.pdf
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    Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1347.

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    Length: 42 p.
    Date of creation: 2013
    Date of revision:
    Handle: RePEc:diw:diwwpp:dp1347
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    19. Berlin, Mitchell & Saunders, Anthony & Udell, Gregory F., 1991. "Deposit insurance reform: What are the issues and what needs to be fixed?," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 735-752, September.
    20. Lammertjan Dam & Michael Koetter, 2012. "Bank Bailouts and Moral Hazard: Evidence from Germany," Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2343-2380.
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