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Deposit Insurance and Wealth Effects: The Value of Being "Too Big to Fail"
Maureen O'Hara and Wayne Shaw
The Journal of Finance
Vol. 45, No. 5 (Dec., 1990), pp. 1587-1600
Stable URL: http://www.jstor.org/stable/2328751
Page Count: 14
You can always find the topics here!Topics: Banks, Banking policy, Banking regulation, Deposit insurance, Solvency, State banks, Banking industry, Bank markets, Wealth effect, Insurance regulation
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This paper investigates the effect on bank equity values of the Comptroller of the Currency's announcement that some banks were "too big to fail" and that for those banks total deposit insurance would be provided. Using an event study methodology, we find positive wealth effects accruing to TBTF banks, with corresponding negative effects accruing to non-included banks. We demonstrate that the magnitude of these effects differed with bank solvency and size. We also show that the policy to which the market reacted was that suggested by the Wall Street Journal and not that actually intended by the Comptroller.
The Journal of Finance © 1990 American Finance Association