Unlimited FDIC Insurance and the Implications for Corporate Cash
Quarterly Journal of Finance, Forthcoming
59 Pages Posted: 21 Aug 2019
Date Written: July 17, 2019
This paper examines the cash management practices of firms during the period of increased FDIC insurance on noninterest-bearing accounts. While the Transaction Account Guarantee Program and Dodd-Frank Act were intended to help banks by preventing deposit withdrawals, they also seem to have contributed to a change in cash management practices given that cash increased at public firms during this time as well. In addition, the increase seems to be driven by financially unconstrained firms, firms not at risk of default, firms with an investment grade bond rating, and firms with low cash flow variation. An analysis of aggregate data shows that a similar increase was not observed for private firms.
Keywords: cash holdings, Federal Deposit Insurance Corporation, Dodd-Frank Wall Street Reform and Consumer Protection Act, Transaction Account Guarantee Program
JEL Classification: G3, G32, G28, G01
Suggested Citation: Suggested Citation