Abstract

The purpose of this paper is to examine the historical evidence on commercial bank failures in the United States in order to assess the validity of the widespread belief that deposit insurance has increased bank failures due to the moral hazard that it represents for bank management.1 It seems paradoxical that this belief has passed into the conventional wisdom when little more than a decade ago its opposite was generally accepted. In 1980 it was widely believed that the historically low failure rates enjoyed since the Great Depression were due to the introduction of federal deposit insurance in 1934.2 By the end of the 1980s deposit insurance was considered the major cause of bank failures. Can it be both? The remainder of the introduction describes the essential elements of potentially fruitful approaches to this question followed by an outline of our approach and a preview of our results.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.