Reciprocal Brokered Deposits, Bank Risk, and Recent Deposit Insurance Policy
46 Pages Posted: 29 Jul 2014 Last revised: 30 Jul 2014
Date Written: July 2014
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: Suggested Citation