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Are banks really special? New evidence from the FDIC-induced failure of healthy banks

Adam Ashcraft ()

No 176, Staff Reports from Federal Reserve Bank of New York

Abstract: The FDIC used cross-guarantees to close thirty-eight subsidiaries of First Republic Bank Corporation in 1988 and eighteen subsidiaries of First City Bancorporation in 1992 when lead banks from each of these Texas-based bank holding companies were declared insolvent. I use this exogenous failure of otherwise healthy subsidiary banks as a natural experiment for studying the impact of bank failure on local-area real economic activity. I find that the closings of the subsidiaries were associated with a significant decline in bank lending that led to a permanent reduction in real county income of about 3 percent.

Keywords: bank failures; cross-guarantee; uniqueness of banks (search for similar items in EconPapers)
JEL-codes: E5 G18 G33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2003-12-01
Note: For a published version of this report, see Adam B. Ashcraft, "Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks," American Economic Review 95, no. 5 (December 2005): 1712-30.
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