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The Legacy of Deposit Insurance: The Growth, Spread, and Cost of Insuring Financial Intermediaries

In: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century

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  • Eugene N. White

Abstract

Without the Great Depression, the United States would not have adopted deposit insurance. While the New Deal's anti-competitive barriers have largely collapsed become" deeply rooted. This paper examines how market and political competition for deposits raised the level of coverage and spread insurance to all depository institutions. A comparison of the cost of federal insurance with a counterfactual of an insurance-free system shows that federal insurance ultimately imposed a" higher cost but achieved political acceptance because of the distribution of the burden.
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Suggested Citation

  • Eugene N. White, 1998. "The Legacy of Deposit Insurance: The Growth, Spread, and Cost of Insuring Financial Intermediaries," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 87-121, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:6889
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    References listed on IDEAS

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    1. Charles W. Calomiris & Eugene N. White, 1994. "The Origins of Federal Deposit Insurance," NBER Chapters, in: The Regulated Economy: A Historical Approach to Political Economy, pages 145-188, National Bureau of Economic Research, Inc.
    2. Robert M. Feinberg & Seth Kaplan, 1993. "Fishing Downstream: The Political Economy of Effective Administered Protection," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 150-158, February.
    3. Hoekman, Bernard M. & Leidy, Michael P., 1992. "Cascading contingent protection," European Economic Review, Elsevier, vol. 36(4), pages 883-892, May.
    4. Goldin, Claudia & Libecap, Gary D. (ed.), 1994. "The Regulated Economy," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226301105.
    5. Calomiris, Charles W., 1990. "Is Deposit Insurance Necessary? A Historical Perspective," The Journal of Economic History, Cambridge University Press, vol. 50(2), pages 283-295, June.
    6. Elijah Brewer Iii & Thomas H. Mondschean, 1993. "Life Insurance Company Risk Exposure: Market Evidence And Policy Implications," Contemporary Economic Policy, Western Economic Association International, vol. 11(4), pages 56-69, October.
    7. White, Lawrence J, 1989. "The Reform of Federal Deposit Insurance," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 11-29, Fall.
    8. Milton Friedman & Anna J. Schwartz, 1987. "Has Government Any Role in Money?," NBER Chapters, in: Money in Historical Perspective, pages 289-314, National Bureau of Economic Research, Inc.
    9. Wheelock, David C, 1992. "Deposit Insurance and Bank Failures: New Evidence from the 1920s," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 530-543, July.
    10. Kennickell, Arthur B & Kwast, Myron L & Starr-McCluer, Martha, 1996. "Households' Deposit Insurance Coverage: Evidence and Analysis of Potential Reforms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 311-322, August.
    11. Grossman, Richard S, 1992. "Deposit Insurance, Regulation, and Moral Hazard in the Thrift Industry: Evidence from the 1930's," American Economic Review, American Economic Association, vol. 82(4), pages 800-821, September.
    12. Matthews, John O., 1994. "Struggle and Survival on Wall Street: The Economics of Competition Among Securities Firms," OUP Catalogue, Oxford University Press, number 9780195050639.
    13. Robert Litan & William Isaac & William Taylor, 1994. "Financial Regulation," NBER Chapters, in: American Economic Policy in the 1980s, pages 519-572, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Hautcoeur Pierre-Cyrille & Riva Angelo E., 2013. "What Financiers Usually Do, and What We Can Learn from History," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 313-331, April.
    2. Demirgüç-Kunt, Asli & Kane, Edward J. & Laeven, Luc, 2008. "Determinants of deposit-insurance adoption and design," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 407-438, July.
    3. Calomiris, Charles W. & Mason, Joseph R. & Weidenmier, Marc & Bobroff, Katherine, 2013. "The effects of reconstruction finance corporation assistance on Michigan's banks' survival in the 1930s," Explorations in Economic History, Elsevier, vol. 50(4), pages 526-547.
    4. Luc Laeven, 2004. "The Political Economy of Deposit Insurance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(3), pages 201-224, December.
    5. Nicholas A. Curott & Tyler Watts & Benjamin R. Thrasher, 2020. "Government-Cheerleading Bias in Money and Banking Textbooks," Econ Journal Watch, Econ Journal Watch, vol. 17(1), pages 1-98–151, March.
    6. Frederic S. Mishkin & Eugene White, 2014. "Unprecedented actions: the Federal Reserve’s response to the global financial crisis in historical perspective," Globalization Institute Working Papers 209, Federal Reserve Bank of Dallas.
    7. Horváth, Bálint, 2015. "Essays in financial stability and public policy," Other publications TiSEM 9e6a078e-4278-4438-8d2c-c, Tilburg University, School of Economics and Management.
    8. Randall S. Kroszner & Philip E. Strahan, 2014. "Regulation and Deregulation of the US Banking Industry: Causes, Consequences, and Implications for the Future," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 485-543, National Bureau of Economic Research, Inc.
    9. Randall S. Kroszner & Philip E. Strahan, 2001. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 233-272, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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