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Reciprocal Brokered Deposits, Bank Risk, and Recent Deposit Insurance Policy


  • Guo Li
  • Sherrill Shaffer


This study provides new evidence regarding reciprocal brokered deposits (RBDs), regulatory responses, and bank risk, contributing to prior studies in four ways. First, using updated financial Call Report data and bank failure data through 2012, we reexamine the moral hazard hypothesis that banks using RBDs exhibit higher risk. Second, we uncover a previously overlooked positive association between RBDs and banks’ cost of failure. Third, we apply Granger causality tests; and finally, we test whether the FDIC’s recent revision of its pricing discourages the use of RBDs and weakens its association with bank risk.

Suggested Citation

  • Guo Li & Sherrill Shaffer, 2014. "Reciprocal Brokered Deposits, Bank Risk, and Recent Deposit Insurance Policy," CAMA Working Papers 2014-56, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2014-56

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    1. Cole, Rebel A. & Gunther, Jeffery W., 1995. "Separating the likelihood and timing of bank failure," Journal of Banking & Finance, Elsevier, vol. 19(6), pages 1073-1089, September.
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    4. Shaffer, Sherrill, 2012. "Reciprocal brokered deposits and bank risk," Economics Letters, Elsevier, vol. 117(2), pages 383-385.
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    13. James B. Thomson, 1991. "Predicting bank failures in the 1980s," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 9-20.
    14. Guo Li & Lee Sanning & Sherrill Shaffer, 2011. "Forecasting bank failures: timeliness versus number of failures," Applied Economics Letters, Taylor & Francis Journals, vol. 18(16), pages 1549-1552.
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    More about this item


    Reciprocal Brokered Deposits; Moral Hazard; cost of failure;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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