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Depositor discipline and changing strategies for regulating thrift institutions

Authors
Journal
Journal of Financial Economics
0304-405X
Publisher
Elsevier
Publication Date
Volume
63
Issue
2
Identifiers
DOI: 10.1016/s0304-405x(01)00096-4
Keywords
  • Depositor Discipline
  • Uninsured Deposits
  • Thrifts
  • Regulation
Disciplines
  • Law

Abstract

Abstract This paper examines the role of uninsured deposits as a source of thrift funding from 1984 to 1994, and tests whether uninsured depositors have adjusted their holdings at thrifts in response to market forces, such as indications of impending institutional failure. It also examines how the reactions have changed over time as new legislation has been implemented. The study finds that failed institutions exhibit declining proportions of uninsured deposits-to-total-deposits prior to failure and that failing institutions attract fewer deposits from uninsured depositors prior to failure than do solvent institutions. Though there are some differences between the periods, the empirical results indicate that uninsured deposits will be governed by market discipline and that reducing the insurance limits on deposits will increase market discipline on thrifts.

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