Reciprocal brokered deposits, bank risk, and recent deposit insurance policy

Guo Li and Sherrill Shaffer

The North American Journal of Economics and Finance, 2015, vol. 33, issue C, 366-384

Abstract: 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 re-examine 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. The findings provide a more precise and nuanced understanding of banks’ use of RBDs.

Keywords: Reciprocal brokered deposits; Moral hazard; Cost of failure (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Working Paper: Reciprocal Brokered Deposits, Bank Risk, and Recent Deposit Insurance Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:33:y:2015:i:c:p:366-384

DOI: 10.1016/j.najef.2015.07.001

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