How Do Insured Deposits Affect Bank Risk? Evidence from the 2008 Emergency Economic Stabilization Act

57 Pages Posted: 19 Dec 2013 Last revised: 8 Oct 2015

See all articles by Claudia Lambert

Claudia Lambert

European Central Bank (ECB)

Felix Noth

Otto-von-Guericke-Universität Magdeburg; Halle Institute for Economic Research

Ulrich Schüwer

Goethe University Frankfurt - Department of Finance; Leibniz Institute for Financial Research SAFE

Date Written: October 1, 2014

Abstract

This paper tests whether an increase in insured deposits causes banks to become more risky. We use variation introduced by the U.S. Emergency Economic Stabilization Act in October 2008, which increased the deposit insurance coverage from $100,000 to $250,000 per depositor and bank. For some banks, the amount of insured deposits increased significantly; for others, it was a minor change. Our analysis shows that the more affected banks increase their investments in risky commercial real estate loans and become more risky relative to unaffected banks following the change. This effect is most distinct for affected banks that are low capitalized.

Keywords: financial crisis, deposit insurance, bank regulation

JEL Classification: G21, G28

Suggested Citation

Lambert, Claudia and Noth, Felix and Schüwer, Ulrich, How Do Insured Deposits Affect Bank Risk? Evidence from the 2008 Emergency Economic Stabilization Act (October 1, 2014). Journal of Financial Intermediation, Forthcoming, SAFE Working Paper No. 38, DIW Berlin Discussion Paper No. 1347, Available at SSRN: https://ssrn.com/abstract=2369236 or http://dx.doi.org/10.2139/ssrn.2369236

Claudia Lambert

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Felix Noth

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

Halle Institute for Economic Research

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/asp/person.asp?fnh&Lang=e&Abteilung=fin

Ulrich Schüwer (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60323
Germany

HOME PAGE: http://www.wiwi.uni-frankfurt.de/de/abteilungen/finance/home.html

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://safe-frankfurt.de/

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