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| Working Papers – 2024 |
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CEO Ownership, Risk Management, and Bank Runs at Unlimited Liability Banks During the 1890s FDIC Center for Financial Research Working Paper No. 2024-03 This Version: April 2024 Abstract Using unique data on California state banks that were subject to the unlimited liability rule, we examine the relationship between liability of bank presidents, risk management, and bank runs during the panic of 1893. During this period, bank presidents were mandated to hold bank stocks with features resembling restricted stock option and clawback provisions of today. These measures were designed to discourage excessive risk-taking by holding managers personally accountable in the event of a bank failure. We find that banks whose presidents have a greater liability exposure adopt more conservative risk management strategies and are thus less likely to experience bank runs and failures. Our study implies that regulatory policies on bank executives affect the risk management methods and the default risk of banks. JEL Codes: G21, N12, N22, D82, E32 |
Deposit Insurance and Bank Funding Stability: Evidence from the TAG Program FDIC Center for Financial Research Working Paper No. 2024-02 This Version: April 2024 Abstract We study the effects on bank funding from the unlimited deposit insurance provided by the Transaction Account Guarantee (TAG) program. We find that opting out of the program caused strong and persistent declines in noninterest-bearing deposits (NIBDs). Further, we find that weak growth in NIBDs reduced banks’ likelihood of opting out of the TAG program, suggesting that banks believed the program could bolster their NIBD funding. Our results suggest that targeted deposit insurance protections can be successful in stemming deposit outflows during periods of stress, and that such protections are valued by banks suffering deposit outflows. JEL Codes: G01, G21, G28 |
Explaining the Life Cycle of Bank-Sponsored Money Market Funds: An Application of the Regulatory Dialectic FDIC Center for Financial Research Working Paper No. 2024-01 This Version: July 2024 Abstract In this paper, we present empirical evidence of the regulatory dialectic in the prime institutional money market fund (PI-MMF) industry. The “regulatory dialectic,” developed by Kane (1977, 1981), describes how banks and regulators react to each other. For decades, a cap on commercial deposit interest rates fueled dramatic growth in bank-sponsored PI-MMFs as a form of shadow banking. We show that during the growth period, banks with more commercial deposits were more likely to enter the PI-MMF industry in an effort to keep their commercial customers in affiliated subsidiaries. However, the 2008 crisis and subsequent re-regulation of the industry halted the rapid growth of PI-MMFs. In the post-crisis regulatory regime, we find that bank-sponsored funds were more likely to exit the industry than nonbank-sponsored funds. Simultaneously, the industry shifted from PI-MMFs to government institutional MMFs as substitute products. We conjecture that the collapse of the PI-MMF can lead further to the emergence of substitute products, such as stablecoins as part of the continuing dialectical process. JEL Codes: G2, G21, G23, G28, H12, H81 |
The Center for Financial Research (CFR) Working Paper Series allows CFR staff and their coauthors to circulate preliminary research findings to stimulate discussion and critical comment. Views and opinions expressed in CFR Working Papers reflect those of the authors and do not necessarily reflect those of the FDIC or the United States. Comments and suggestions are welcome and should be directed to the authors. References should cite this research as a “FDIC CFR Working Paper” and should note that findings and conclusions in working papers may be preliminary and subject to revision.