Uninsured deposits as a source of market discipline: some new evidence

摘要: Money center banks typically place a heavy reliance on purchased funds, not explicitly insured by the FDIC. Suppliers of these funds will withdraw them from bank if they believe that losses are imminent. Since creation FDIC such deposit runs have been rare. But in 1980s Continental Illinois National Bank experienced two runs. The first occurred after failure Penn Square July 1982 and subsequent discovery had more than billion dollars energy loans. second run spring 1984 eventually forced to guarantee all Continental's creditors. experience with has led many regulators question wisdom general uninsured deposits particular. Others argued source market discipline, which means when an important funding source, likely take less risk. This article examines proposition CD markets charge riskier higher rates. It begins discussing recent trends deposits, then summarizes previous evidence their risk sensitivity, ends presenting results some our own recently completed research. Previous studies found little charges for outside crisis situations. However, employed inappropriate measures When we employ derived stock price data, find, among other things, even solvent, does funds. new summarized here suggests proposals restrict uninsured, costless. While might reduce likelihood runs, would at same time banks' incentives control Trends