FDIC Coverage on bank failures: Cointegration analysis using annual data, 1942–91 |
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Authors: | Ira S Saltz |
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Institution: | (1) Valdosta State University, USA |
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Abstract: | The present study empirically investigates whether in the U.S. federal government-provided deposit insurance, which was intended
to prevent runs on banks and to protect depositors of modest means, has acted to induce increased bank failures. This issue
has been investigated earlier, but only with regression analysis, and it remains unresolved since results vary sharply from
one study to the next. By contrast, the present study uses cointegration techniques to investigate this problem. The cointegration
analysis finds strong evidence of a cointegrating relationship between the bank failure rate and the extent of central government-provided
deposit insurance, as well as other variables. Maximum eigenvalue and trace test results, along with normalized cointegrating
vectors and likelihood ratio test results, are provided for examination. |
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Keywords: | |
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