Adverse selection in deposit insurance and government funding following the 2023 banking crisis

David A. Huberdeau-Reid and George G. Pennacchi

Journal of Financial Intermediation, 2025, vol. 63, issue C

Abstract: We examine whether U.S. banks whose uninsured deposits were subject to greater risk of loss prior to the March 2023 banking crisis used institutional mechanisms to expand their deposit insurance or accessed government funding after the crisis. We construct a bank-level measure of pre-crisis uninsured depositor risk incorporating financial statements, unrealized security losses, and estimates of unrealized loan losses that predicts a bank’s post-crisis loss of uninsured deposits. We find that riskier small and midsize banks tended to utilize reciprocal, sweep, and brokered deposits, but not listing service deposits, to attract more insured deposits. Riskier small and midsize banks temporarily accessed FHLB advances while only risky midsize banks borrowed from the Discount Window. Risk did not predict banks’ use of Fed BTFP funding. Riskier banks, particularly small and midsize ones, paid relatively higher interest rates on many types of deposits.

Keywords: Deposit insurance; Adverse selection; Banking; Regulation (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042957325000336
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:63:y:2025:i:c:s1042957325000336

DOI: 10.1016/j.jfi.2025.101165

Access Statistics for this article

Journal of Financial Intermediation is currently edited by Elu von Thadden

More articles in Journal of Financial Intermediation from Elsevier
Bibliographic data for series maintained by Catherine Liu ().