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1 results

  • DEPOSIT INSURANCE AND MORAL HAZARD: EVIDENCE FROM TEXAS BANKING IN THE 1920S

  • Linda M. Hooks, Kenneth J. Robinson
  • Journal:
    The Journal of Economic History / Volume 62 / Issue 3 / September 2002
    Published online by Cambridge University Press:
    11 October 2002, pp. 833-853
    Print publication:
    September 2002

  • Using recently collected examination data from a sample of Texas state-chartered banks over the period 1919–1926, the role of moral hazard in increasing ex-ante asset risk is explored. Analyzing individual bank-level data, we find that the existence of deposit insurance for state-chartered banks increased their likelihood of failure. Increases in loan concentrations followed declines in capitalization at insured state banks. However, we find no statistically significant relationship between loan concentrations and capitalization at uninsured national banks or at state banks before the introduction of deposit insurance. These results show a moral-hazard effect at work.