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Deposit Insurance and Wealth Effects: The Value of Being “Too Big to Fail”

Deposit Insurance and Wealth Effects: The Value of Being “Too Big to Fail” ABSTRACT This paper investigates the effect on bank equity values of the Comptroller of the Currency's announcement that some banks were “too big to fail” and that for those banks total deposit insurance would be provided. Using an event study methodology, we find positive wealth effects accruing to TBTF banks, with corresponding negative effects accruing to non‐included banks. We demonstrate that the magnitude of these effects differed with bank solvency and size. We also show that the policy to which the market reacted was that suggested by the Wall Street Journal and not that actually intended by the Comptroller. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Deposit Insurance and Wealth Effects: The Value of Being “Too Big to Fail”

O'HARA, MAUREEN; SHAW, WAYNE
The Journal of Finance , Volume 45 (5) – Dec 1, 1990
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References (15)

Publisher
Wiley
Copyright
1990 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1990.tb03729.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper investigates the effect on bank equity values of the Comptroller of the Currency's announcement that some banks were “too big to fail” and that for those banks total deposit insurance would be provided. Using an event study methodology, we find positive wealth effects accruing to TBTF banks, with corresponding negative effects accruing to non‐included banks. We demonstrate that the magnitude of these effects differed with bank solvency and size. We also show that the policy to which the market reacted was that suggested by the Wall Street Journal and not that actually intended by the Comptroller.

Journal

The Journal of Finance – Wiley

Published: Dec 1, 1990

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