Adverse selection and competing deposit insurance systems in pre-depression Texas

Jeffery W. Gunther, Linda M. Hooks and Kenneth Robinson

No 97-4, Financial Industry Studies Working Paper from Federal Reserve Bank of Dallas

Abstract: In 1910, Texas instituted a highly unique deposit insurance program for its state chartered banks consisting of two separate plans: the depositors guaranty fund, similar in operation to the deposit insurance schemes adopted in several other states; and the depositors bond security system, which required the procurement of a privately issued insurance policy. We hypothesize that the provision of a choice in funds led to risk-sorting among the banks, with the relatively conservative institutions opting for the comparatively rigorous bond security system. Employing a probit model with heteroskedasticity, the evidence we obtain from balance sheet data recorded at the time the banks were required to enlist in an insurance plan indicates that such was the case, as the alternative plan relying on privately issued insurance was widely unpopular except among relatively conservative and well-managed institutions.

Keywords: Deposit; insurance (search for similar items in EconPapers)
Date: 1997
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.dallasfed.org/-/media/Documents/banking/fiswp/fiswp9704.pdf Full text (application/pdf)

Related works:
Journal Article: Adverse Selection and Competing Deposit Insurance Systems in Pre-Depression Texas (2000)
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:fip:feddfi:97-4

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Financial Industry Studies Working Paper from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().