Bitte verwenden Sie diesen Link, um diese Publikation zu zitieren, oder auf sie als Internetquelle zu verweisen: https://hdl.handle.net/10419/210721 
Erscheinungsjahr: 
2018
Schriftenreihe/Nr.: 
Staff Report No. 869
Verlag: 
Federal Reserve Bank of New York, New York, NY
Zusammenfassung: 
Prior to the Great Depression, regulators imposed double liability on bank shareholders to ensure financial stability and protect depositors. Under double liability, shareholders of failing banks lost their initial investment and had to pay up to the par value of the stock in order to compensate depositors. We examine whether double liability was effective at mitigating bank risks and providing a safety net for depositors before and during the Great Depression. We first develop a model that demonstrates two competing effects of double liability: a direct effect that constrains bank risk taking as a result of increased skin in the game, and an indirect effect that promotes risk taking owing to weaker monitoring by better-protected depositors. We then test the model's predictions using a novel identification strategy that compares state Federal Reserve member banks and national banks in New York and New Jersey. We find no evidence that double liability reduced bank risk prior to the Great Depression, but do find evidence that deposits in double-liability banks were stickier and less susceptible to runs during the Great Depression. Our findings suggest that the banking system was inherently fragile under double liability because of the conflict between shareholder incentive alignment and depositor market discipline; the depositor protection feature of double liability reduced the threat of funding outflows but may have undermined its effectiveness as a regulatory tool for reducing bank risk.
Schlagwörter: 
double liability
moral hazard
market discipline
bank runs
Great Depression
JEL: 
G21
G28
N22
Dokumentart: 
Working Paper

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