Depositor Liquidity and Loss Sharing in Bank Failure Resolutions

George G. Kaufman

Contemporary Economic Policy, 2004, vol. 22, issue 2, 237-249

Abstract: Bank failures are widely feared because depositors may suffer losses in the value of their deposits and restrictions in access to their deposits. In the United States, this is not true for insured deposits, which are made fully available to depositors almost immediately. But both problems may occur for uninsured deposits. One way to mitigate liquidity loss to uninsured depositors is to make the estimated recovery value of their deposits quickly available to them by the Federal Deposit Insurance Corporation (FDIC). Such a policy would greatly enhance the FDIC's ability to resolve large bank insolvencies without having to protect uninsured depositors through too‐big‐to‐fail policies. (JEL G21, G28, G10)

Date: 2004
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