Depositor Preference Legislation and Failed Banks' Resolution Costs

FRB of Cleveland Working Paper No. 97-15

39 Pages Posted: 24 Jun 2003

See all articles by William P. Osterberg

William P. Osterberg

University of Wyoming - College of Business - Department of Economics and Finance

James B. Thomson

University of Akron

Multiple version iconThere are 2 versions of this paper

Date Written: November 2002

Abstract

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.

Keywords: Depositor preference, bank failures, resolution costs, resolution type, FDIC

JEL Classification: G2, C3

Suggested Citation

Osterberg, William P. and Thomson, James B., Depositor Preference Legislation and Failed Banks' Resolution Costs (November 2002). FRB of Cleveland Working Paper No. 97-15. Available at SSRN: https://ssrn.com/abstract=367101 or http://dx.doi.org/10.2139/ssrn.367101

William P. Osterberg

University of Wyoming - College of Business - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-3848 (Phone)

James B. Thomson (Contact Author)

University of Akron ( email )

Akron, OH 44325-4803
United States

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