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Depositor preference and the cost of capital for insured depository institutions

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  • William P. Osterberg
  • James B. Thomson

Abstract

An analysis of the impact of depositor preference laws on the cost of debt capital for banks and on the value of FDIC deposit guarantees. The authors find that depositor preference laws increase the value of uninsured deposit claims and reduce the size of the FDIC subsidy, but will not affect the total value of banks and thrifts unless deposit insurance is mispriced.

Suggested Citation

  • William P. Osterberg & James B. Thomson, 1994. "Depositor preference and the cost of capital for insured depository institutions," Working Papers (Old Series) 9404, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:9404
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    References listed on IDEAS

    as
    1. Ramon P. DeGennaro & James B. Thomson, 1992. "Capital forbearance and thrifts: an ex post examination of regulatory gambling," Working Papers (Old Series) 9209, Federal Reserve Bank of Cleveland.
    2. Thomson, James B, 1987. "The Use of Market Information in Pricing Deposit Insurance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 528-537, November.
    3. Chen, Andrew H, 1978. "Recent Developments in the Cost of Debt Capital," Journal of Finance, American Finance Association, vol. 33(3), pages 863-877, June.
    4. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
    5. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, April.
    6. William P. Osterberg & James B. Thomson, 1987. "Deposit insurance and the cost of capital," Working Papers (Old Series) 8714, Federal Reserve Bank of Cleveland.
    7. Osterberg, William P. & Thomson, James B., 1991. "The effect of subordinated debt and surety bonds on the cost of capital for banks and the value of federal deposit insurance," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 939-953, September.
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    Cited by:

    1. William P. Osterberg & James B. Thomson, 1997. "Depositor preference legislation and failed banks' resolution costs," Working Papers (Old Series) 9715, Federal Reserve Bank of Cleveland.

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    Keywords

    Bank failures; Bank capital;

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