Kansas’ Experiment with Private Deposit Insurance

44 Pages Posted: 11 Aug 2021

See all articles by Lee Davison

Lee Davison

FDIC, Division of Insurance and Research

Carlos D. Ramirez

George Mason University - Department of Economics

Date Written: April 2021

Abstract

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

Davison, Lee and Ramirez, Carlos D., Kansas’ Experiment with Private Deposit Insurance (April 2021). FDIC Center for Financial Research Paper No. 2021-05, Available at SSRN: https://ssrn.com/abstract=3902067 or http://dx.doi.org/10.2139/ssrn.3902067

Lee Davison (Contact Author)

FDIC, Division of Insurance and Research ( email )

550 Seventeenth Street, NW
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United States

Carlos D. Ramirez

George Mason University - Department of Economics ( email )

4400 University Drive
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Fairfax, VA 22030
United States
703-993-1130 (Phone)
703-993-1133 (Fax)

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