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Depositor-preference laws and the cost of debt capital

Author

Listed:
  • William P. Osterberg
  • James B. Thomson
Abstract
Under depositor-preference laws, depositors' claims on the assets of failed depository institutions are senior to unsecured general-creditor claims. As a result, depositor preference changes the capital structure of banks and thrifts, thereby affecting the cost of capital for depositories. Depositor preference has no impact on the total value of banks and thrifts, however, unless deposit insurance is mispriced.

Suggested Citation

  • William P. Osterberg & James B. Thomson, 1999. "Depositor-preference laws and the cost of debt capital," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 10-20.
    • Handle: RePEc:fip:fedcer:y:1999:i:qiii:p:10-20
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    File URL: http://www.clevelandfed.org/Research/review/1999/99-q3-osterberg.pdf
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    References listed on IDEAS

    as
    1. Ramon P. DeGennaro & James B. Thomson, 1992. "Capital forbearance and thrifts: an ex post examination of regulatory gambling," Working Papers (Old Series) 9209, Federal Reserve Bank of Cleveland.
    2. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, April.
    3. William P. Osterberg, 1996. "The impact of depositor preference laws," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 2-11.
    4. Chen, Andrew H, 1978. "Recent Developments in the Cost of Debt Capital," Journal of Finance, American Finance Association, vol. 33(3), pages 863-877, June.
    5. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
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    Cited by:

    1. Kevin Davis, 2020. "Regulatory changes to bank liability structures: implications for deposit insurance design," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(1), pages 95-106, March.
    2. Kahn, Charles M. & Santos, Joao A.C., 2005. "Allocating bank regulatory powers: Lender of last resort, deposit insurance and supervision," European Economic Review, Elsevier, vol. 49(8), pages 2107-2136, November.
    3. Chuang‐Chang Chang & San‐Lin Chung & Ruey‐Jenn Ho & Yu‐Jen Hsiao, 2022. "Revisiting the valuation of deposit insurance," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(1), pages 77-103, January.
    4. Pagès, H. & Santos, J., 2002. "Optimal Supervisory Policies and Depositor-Preferences Laws," Working papers 91, Banque de France.

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