Depositor Preference Legislation and Failed Banks' Resolution Costs
William P. Osterberg
University of Wyoming - College of Business - Department of Economics and Finance
James B. Thomson
University of Akron
FRB of Cleveland Working Paper No. 97-15
The Omnibus Budget Reconciliation Act of 1993 included depositor preference legislation intended to reduce Federal Deposit Insurance Corporation (FDIC) resolution costs. However, depositor preference might induce an offsetting reaction by general creditors and may affect resolution type. We examine the empirical impact of state-level depositor preference laws on resolution type and costs with call-report data and FDIC data for all operating FDIC-BIF insured commercial banks that were closed or required FDIC financial assistance from January 1986 through December 1992. Our major findings are that depositor preference has 1) tended to increase resolution costs and 2) induced the FDIC to choose assisted mergers over liquidations.
Number of Pages in PDF File: 39
Keywords: Depositor preference, bank failures, resolution costs, resolution type, FDIC
JEL Classification: G2, C3working papers series
Date posted: June 24, 2003
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