Mispriced and misadministered deposit insurance imparts risk-shifting incentives to U.S. banks. Regulators are expected to monitor and discipline increases in bank risk exposure that would transfer wealth from the FDIC to bank stockholders. This paper assesses the success regulators had in...

Unrecognized and deferred losses at insured deposit institutions currently impair the capacity of the nation's principal deposit insurers (the FDIC and FSLIC) both to discipline failing institutions and to discipline or take over insolvent ones. These agencies' accrued but unreported losses far...

In March 1985, the failure of the Ohio Deposit Guarantee Fund (the ODGF) sent shock waves reverberating through the financial world. This episode is popularly interpreted as evidence of the dangers of both private deposit insurance and continuing financial deregulation. This paper argues that...

To realign supervisory and market incentives, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) adjusts two principal features of federal banking supervision. First, it requires regulators to examine insured institutions more frequently and makes them accountable for...

EU financial safety nets are social contracts that assign uncertain benefits and burdens to taxpayers in different member countries. To help national officials to assess their taxpayers' exposures to loss from partner countries, this paper develops a way to estimate how well markets and...

Explicit deposit insurance has been spreading rapidly in recent years, even to countries with low levels of financial and institutional development. Economic theory indicates that deposit-insurance design features interact--for good or ill--with country-specific elements of the financial and...

Financial safety nets are incomplete social contracts that assign responsibility to various economic sectors for preventing, detecting, and paying for potentially crippling losses at financial institutions. This paper uses the theories of incomplete contracts and sequential bargaining to...

Banks are in the business of taking calculated risks. Expanding the geographic footprint of an organization's profit-making activities changes the geographic pattern of its exposure to loss in ways that are hard for regulators and supervisors to observe. This paper tests and confirms the...

This paper models and estimates ex ante safety-net benefits at a sample of large banks in US and Europe during 2003-2008. Our results suggest that difficult-to-fail and unwind (DFU) banks enjoyed substantially higher ex ante benefits than other institutions. Safety-net benefits prove...

This paper proposes a theoretically sound and easy-to-implement way to measure the systemic risk of financial institutions using publicly available accounting and stock market data. The measure models credit risk of banks as a put option on bank assets, a tradition that originated with Merton...