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Stealing Deposits: Deposit Insurance, Risk-Taking and the Removal of Market Discipline in Early 20th Century Banks / Charles W. Calomiris, Matthew S. Jaremski.
- Format:
- Book
- Author/Creator:
- Calomiris, Charles W.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22692.
- NBER working paper series no. w22692
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Stealing Deposits
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- Deposit insurance reduces liquidity risk but it also can increase insolvency risk by encouraging reckless behavior. A handful of U.S. states installed deposit insurance laws before the creation of the FDIC in 1933, and those laws only applied to some depository institutions within those states. These experiments present a unique testing ground for investigating the effect of deposit insurance. We show that deposit insurance increased risk by removing market discipline that had been constraining erstwhile uninsured banks. Taking advantages of the rising world agricultural prices during World War I, insured banks increased their insolvency risk, and competed aggressively for the deposits of uninsured banks operating nearby. When prices fell after the War, the insured systems collapsed and suffered especially high losses.
- Notes:
- Print version record
- September 2016.
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