Who Should Learn What From the Failure and Delayed Bailout of the ODGF?

Edward J. Kane

NBER Working Paper No. 2260
Issued in May 1987
NBER Program(s):Monetary Economics

In March 1985, the failure of the Ohio Deposit Guarantee Fund (the ODGF) sent shock waves reverberating through the financial world. This episode is popularly interpreted as evidence of the dangers of both private deposit insurance and continuing financial deregulation. This paper argues that policies of financial deregulation played little role in the ODGF insolvency. The failure of the ODGF was instead a failure of government regulation, rooted in inadequacies in the OGDF information and enforcement systems. The ODGF may be conceived as the Federal Savings and Loan Insurance Corporation writ small. Both agencies share many of the same structural imbalances: large unresolved losses, explicitly mispriced and underreserved services, inadequate information and monitoring systems, insufficient disciplinary powers, and a susceptibility to political pressures to forbear. Doctors perform autopsies on dead patients to improve their ability to protect living ones. This paper's autopsy of the institutional corpse of the ODGF focuses on identifying the kinds of disturbances that transform structural imbalances into a full-fledged crisis. Our research underscores the way that deceptive accounting and underfinanced insurance funds contain crisis pressures in the short run by setting the stage for more severe problems down the line. As financial markets approach more and more closely the perfect and complete markets beloved by finance theorists, the amount of time that can be bought by policies that merely defer crisis pressures is shrinking and becoming hard to use productively.

download in pdf format
   (472 K)

download in djvu format
   (241 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2260

Published: Edward J. Kane, 1987. "Who should learn what from the failure and delayed bailout of the ODGF?," Proceedings, Federal Reserve Bank of Chicago, pages 306-326.

Users who downloaded this paper also downloaded* these:
Allen w3854 Changes in the Cyclical Sensitivity of Wages in the United States, 1891-1987
Bernheim and Bagwell w2086 Is Everything Neutral?
Ehrenberg and Schwarz w0717 The Effect of Unions on Productivity in the Public Sector: The Case of Libraries
Polinsky and Rubinfeld w2114 A Note on Optimal Public Enforcement with Settlements and Litigation Costs
Baldwin and Krugman w1936 Market Access and International Competition: A Simulation Study of 16K Random Access Memories
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us