Abstract
This research examines the relationship between the value of federal deposit insurance and bank size. We conclude that the value of deposit insurance has often been greater for the largest bank-holding companies since 1981. This differential is consistent with the notion that largest banks have greater ability to circumvent regulatory and/or market discipline. The source of this differential appears to be due to holding less capital rather than greater asset risk. Insurance costs net of the value of deposit insurance are also relatively lower for the largest banks and have become more so since 1981. These results suggest that recent proposals to improve the deposit insurance system should be evaluated based on their ability to effect even-handed discipline throughout the banking industry to eliminate and forestall further creation of this large institution bias.
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