Deposit Insurance and Depositor Monitoring: Quasi‐Experimental Evidence from the Creation of the Federal Deposit Insurance Corporation

Haelim Anderson, Gary Richardson and Brian Yang

Journal of Money, Credit and Banking, 2023, vol. 55, issue 2-3, 441-464

Abstract: The Banking Acts of 1933 and 1935 insured deposits up to $5,000 and limited interest paid by commercial banks. This essay uses a treatment‐and‐control estimation strategy to determine how those reforms influenced depositors’ reactions to information about banks’ balance sheets by comparing preferred and regular depositors at New York state banks. Before deposit insurance, regular depositors reacted more to information about banks, while preferred depositors reacted less. After, this difference diminished and almost disappeared. This change indicates insurance reduced monitoring, although depositors’ continued response to some information indicates that large, uninsured depositors continued to monitor banks, as the legislation intended.

Date: 2023
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https://doi.org/10.1111/jmcb.12987

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Working Paper: Deposit Insurance and Depositor Monitoring: Quasi-Experimental Evidence from the Creation of the Federal Deposit Insurance Corporation (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:55:y:2023:i:2-3:p:441-464

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