Premium
Deposit Insurance and Wealth Effects: The Value of Being “Too Big to Fail”
Author(s) -
O'HARA MAUREEN,
SHAW WAYNE
Publication year - 1990
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1990.tb03729.x
Subject(s) - currency , solvency , too big to fail , equity (law) , monetary economics , value (mathematics) , economics , business , deposit insurance , actuarial science , financial system , financial crisis , macroeconomics , mathematics , statistics , market liquidity , law , political science
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.