Are banks really special? New evidence from the FDIC-induced failure of healthy banks

Adam B. Ashcraft ()

No 176, Staff Reports from Federal Reserve Bank of New York

Abstract: The FDIC used cross-guarantees to close thirty-eight subsidiaries of First Republic Bank Corporation in 1988 and eighteen subsidiaries of First City Bancorporation in 1992 when lead banks from each of these Texas-based bank holding companies were declared insolvent. I use this exogenous failure of otherwise healthy subsidiary banks as a natural experiment for studying the impact of bank failure on local-area real economic activity. I find that the closings of the subsidiaries were associated with a significant decline in bank lending that led to a permanent reduction in real county income of about 3 percent.

Keywords: Bank failures; Local finance; Subsidiary corporations; Bank loans; Income; Federal Deposit Insurance Corporation (search for similar items in EconPapers)
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Date: 2003
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Journal Article: Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks (2005)
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