NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Brian S. Yang

San Francisco State University
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San Francisco, CA 94132

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Institutional Affiliation: San Francisco State University

NBER Working Papers and Publications

September 2017Deposit Insurance and Depositor Monitoring: Quasi-Experimental Evidence from the Creation of the Federal Deposit Insurance Corporation
with Haelim Park Anderson, Gary Richardson: w23828
In the Banking Acts of 1933 and 1935, the United States created the Federal Deposit Insurance Corporation, which ensured deposits in commercial banks up to $5,000. Congress capped the size of insured deposits so that small depositors would not run on banks, but large and informed depositors – such as firms and investors – would continue to monitor banks’ behavior. This essay asks how that insurance scheme influenced depositors’ reactions to news about the health of the economy and information on bank’s balance sheets. An answer arises from our treatment-and-control estimation strategy. When deposit insurance was created, banks with New York state charters accepted regular and preferred deposits. Preferred depositors received low, fixed interest rates, but when banks failed, received priori...
 
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