FDIC coverage on bank failures: Cointegration analysis using annual data, 1942-91

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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. (JEL G20).

Original languageEnglish (US)
Pages (from-to)71-80
Number of pages10
JournalInternational Advances in Economic Research
Volume3
Issue number1
DOIs
StatePublished - Feb 1997

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Economics, Econometrics and Finance(all)

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