Reciprocal Brokered Deposits, Bank Risk, and Recent Deposit Insurance Policy

46 Pages Posted: 29 Jul 2014 Last revised: 30 Jul 2014

See all articles by Guo Li

Guo Li

Fannie Mae

Sherrill Shaffer

University of Wyoming

Date Written: July 2014

Abstract

This study provides new evidence regarding reciprocal brokered deposits (RBDs), regulatory responses, and bank risk, contributing to prior studies in four ways. First, using updated financial Call Report data and bank failure data through 2012, we reexamine the moral hazard hypothesis that banks using RBDs exhibit higher risk. Second, we uncover a previously overlooked positive association between RBDs and banks’ cost of failure. Third, we apply Granger causality tests; and finally, we test whether the FDIC’s recent revision of its pricing discourages the use of RBDs and weakens its association with bank risk.

Keywords: Reciprocal Brokered Deposits, Moral Hazard, cost of failure

JEL Classification: G21, G22, G28

Suggested Citation

Li, Guo and Shaffer, Sherrill, Reciprocal Brokered Deposits, Bank Risk, and Recent Deposit Insurance Policy (July 2014). CAMA Working Paper No. 56/2014. Available at SSRN: https://ssrn.com/abstract=2473373 or http://dx.doi.org/10.2139/ssrn.2473373

Guo Li

Fannie Mae ( email )

3900 Wisconsin Ave NW
Washington DC, DC 20003
United States

Sherrill Shaffer (Contact Author)

University of Wyoming ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-2173 (Phone)
307-766-5090 (Fax)

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