Bank Liability Insurance Schemes Before 1865

Creator Series Issue number
  • 679
Date Created
  • 2011-12-02
  • Prior to 1861, several U.S. states established bank liability insurance schemes. One type was an insurance fund. Member banks paid into a state-run fund that paid bank creditors’ losses. A second scheme was a mutual guarantee system. Member banks were legally responsible for the liabilities of any insolvent bank. This paper’s hypothesis is that the moral hazard problem was controlled under a scheme to the degree that member banks had the power and incentive to control or modify others’ risk-taking behavior. Schemes that gave member banks both strong incentives and power were able to control the moral hazard problem better than schemes in which one or both features were weak. Empirical evidence on bank failures and losses on banks’ asset portfolios is consistent with this hypothesis.

Subject (JEL) Stichwort Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
  • Federal Reserve Bank of Minneapolis
Resource type DOI


In Collection:
Zuletzt geändert

Herunterladbarer Inhalt

PDF Herunterladen

Zipped Files

Download a zip file that contains all the files in this work.