Can deposit insurance increase the risk of bank failure? Some historical evidence.

Federal Reserve Bank of St. Louis Review | May 1, 1994| | Copyright

LOAN LOSSES ASSOCIATED WITH declines in energy and agricultural prices, and the collapse of commercial real estate markets were the proximate cause of the high number of bank and savings and loan (S&L) failures of the past 12 years. Many researchers also blame government policies, however, such as restrictions on branch banking and limitations on the services that banks and S&Ls may offer. Such restrictions hamper diversification, thus leaving depository institutions particularly vulnerable to downturns in the regions which they serve.

Deposit insurance has probably ...

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