A Contracting-Theory Interpretation of the Origins of Federal Deposit Insurance

Edward Kane and Berry K Wilson

Journal of Money, Credit and Banking, 1998, vol. 30, issue 3, 573-95

Abstract: Conventional wisdom holds that the enactment of federal deposit insurance helped small rural banks at the expense of large urban institutions. This paper uses asymmetric-information, agency-cost paradigms from corporate-finance theory and data on bank stock prices to show how deposit insurance could and did help stockholders of large banks. The broadening stockholder distribution of large banks during the stock-market bubble of the late 1920s undermined the efficiency of double liability provisions in controlling incentive conflict among large-bank stakeholders. Federal deposit insurance restored depositor confidence by asking government officials to take over and bond the task of monitoring managerial performance and solvency at U.S. banks.

Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (23)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: A contracting-theory intepretation of the origins of Federal deposit insurance (1998)
Working Paper: A Contracting-Theory Interpretation of the Origins of Federal Deposit Insurance (1998)
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:mcb:jmoncb:v:30:y:1998:i:3:p:573-95

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing (jdl@wiley.com) and Christopher F. Baum (baum@bc.edu).