Kansas’ Experiment with Private Deposit Insurance
44 Pages Posted: 11 Aug 2021
Date Written: April 2021
Between 1909 and 1922 a private deposit insurance company coexisted with the state-sponsored deposit insurance program in Kansas. This paper documents its development using primary sources. In addition, it examines if affiliation with the private deposit insurance (i) had an effect on risk-taking and the probability of failure; (ii) increased confidence among depositors, and (iii) was influenced by a neighboring bank’s membership in the state’s deposit insurance. We find that affiliation with the private deposit insurance did not affect a bank’s likelihood of failure, although smaller national bank members did increase risk-taking. The evidence does not support the hypothesis that the company enhanced depositor confidence. Lastly, we do find strong evidence that a bank’s decision to join the private deposit insurance was influenced by neighboring banks’ affiliation with the Kansas deposit insurance program.
Keywords: private deposit insurance; Kansas state deposit insurance; moral hazard
JEL Classification: G21, G22, N21, N22
Suggested Citation: Suggested Citation