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

Edward Kane and Berry K. Wilson

No 6451, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G2 N2 (search for similar items in EconPapers)
Date: 1998-03
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as Journal of Money, Credit and Banking, Vol. 30 (August 2000): 51-74.
Published as Edward J. Kane & Berry K. Wilson, 1998. "A contracting-theory intepretation of the origins of Federal deposit insurance," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 573-595.

Downloads: (external link)
http://www.nber.org/papers/w6451.pdf (application/pdf)

Related works:
Journal Article: A contracting-theory intepretation of the origins of Federal deposit insurance (1998)
Journal Article: 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:nbr:nberwo:6451

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6451

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().