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Depositor Liquidity and Loss Sharing in Bank Failure Resolutions

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  • George G. Kaufman

Abstract

Bank failures are widely feared because depositors may suffer losses in the value of their deposits and restrictions in access to their deposits. In the United States, this is not true for insured deposits, which are made fully available to depositors almost immediately. But both problems may occur for uninsured deposits. One way to mitigate liquidity loss to uninsured depositors is to make the estimated recovery value of their deposits quickly available to them by the Federal Deposit Insurance Corporation (FDIC). Such a policy would greatly enhance the FDIC's ability to resolve large bank insolvencies without having to protect uninsured depositors through too‐big‐to‐fail policies. (JEL G21, G28, G10)

Suggested Citation

  • George G. Kaufman, 2004. "Depositor Liquidity and Loss Sharing in Bank Failure Resolutions," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 237-249, April.
    • Handle: RePEc:bla:coecpo:v:22:y:2004:i:2:p:237-249
    DOI: 10.1093/cep/byh017
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    References listed on IDEAS

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    Cited by:

    1. Viral V. Acharya & T. Sabri Öncü, 2013. "A Proposal for the Resolution of Systemically Important Assets and Liabilities: The Case of the Repo Market," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 291-351, January.
    2. J. Stephen Ferris & John Galbraith, 2006. "On Hayek's denationalization of money, free banking and inflation targeting," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 13(2), pages 213-231.
    3. Gillian G.H. Garcia & Rosa M. Lastra & María J. Nieto, 2009. "Bankruptcy and reorganization procedures for cross‐border banks in the EU," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 17(3), pages 240-276, July.
    4. Sonia Ondo Ndong & Laurence Scialom, 2009. "Northern Rock: The Anatomy of a Crisis—The Prudential Lessons," Palgrave Macmillan Books, in: Robert R. Bliss & George G. Kaufman (ed.), Financial Institutions and Markets, chapter 3, pages 51-74, Palgrave Macmillan.
    5. Robert R. Bliss & George G. Kaufman, 2006. "A comparison of U.S. corporate and bank insolvency resolution," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 30(Q II), pages 44-55.
    6. DeYoung, Robert & Kowalik, Michal & Reidhill, Jack, 2013. "A theory of failed bank resolution: Technological change and political economics," Journal of Financial Stability, Elsevier, vol. 9(4), pages 612-627.
    7. Kaufman, George G., 2014. "Too big to fail in banking: What does it mean?," Journal of Financial Stability, Elsevier, vol. 13(C), pages 214-223.
    8. Wall, Larry D. & Eisenbeis, Robert A. & Frame, W. Scott, 2005. "Resolving large financial intermediaries: Banks versus housing enterprises," Journal of Financial Stability, Elsevier, vol. 1(3), pages 386-425, April.
    9. Robert R. Bliss & George G. Kaufman, 2006. "U.S. corporate and bank insolvency regimes: an economic comparison and evaluation," Working Paper Series WP-06-01, Federal Reserve Bank of Chicago.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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