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FDIC Coverage on bank failures: Cointegration analysis using annual data, 1942–91

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  • Ira Saltz

Abstract

The present study empirically investigates whether in the U.S. federal government-provided deposit insurance, which was intended to prevent runs on banks and to protect depositors of modest means, has acted to induce increased bank failures. This issue has been investigated earlier, but only with regression analysis, and it remains unresolved since results vary sharply from one study to the next. By contrast, the present study uses cointegration techniques to investigate this problem. The cointegration analysis finds strong evidence of a cointegrating relationship between the bank failure rate and the extent of central government-provided deposit insurance, as well as other variables. Maximum eigenvalue and trace test results, along with normalized cointegrating vectors and likelihood ratio test results, are provided for examination. Copyright International Atlantic Economic Society 1997

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  • Ira Saltz, 1997. "FDIC Coverage on bank failures: Cointegration analysis using annual data, 1942–91," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 3(1), pages 71-80, February.
    • Handle: RePEc:kap:iaecre:v:3:y:1997:i:1:p:71-80:10.1007/bf02295002
    DOI: 10.1007/BF02295002
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    1. J. H. Taggart & L. D. Jennings, 1934. "The Insurance of Bank Deposits," Journal of Political Economy, University of Chicago Press, vol. 42(4), pages 508-508.
    2. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
    3. Walsh, Carl E, 1984. "Interest Rate Volatility and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 133-150, May.
    4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    5. Cebula, Richard, 1992. "The Impact of Federal Deposit Insurance on Savings and Loan Failures," MPRA Paper 51540, University Library of Munich, Germany.
    6. James R. Barth, 1991. "The Great Savings and Loan Debacle," Books, American Enterprise Institute, number 918256, September.
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    Cited by:

    1. Cebula, Richard, 1999. "Determinants of the Rate of Return on Commercial Bank Assets, 1933-1998," MPRA Paper 61414, University Library of Munich, Germany.
    2. Cebula, Richard, 2000. "Determinants of the Rate of Return on Commercial Bank Assets in the United States, 1959-1998," MPRA Paper 60006, University Library of Munich, Germany.

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