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The Impact of Depositor Preference Laws

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The 1993 amendment to the Federal Deposit Insurance Corporation Act made depositors' claims on failed banks superior to those of general creditors. The legislation’s stated purpose was to reduce the cost to the FDIC of resolving bank failures, but how effective is it likely to be? This paper examines the impact of states' depositor preference laws from 1984 through 1992 and finds that although resolution costs were lower, creditors' responses may have partially offset the legislation's benefit to the FDIC.

Suggested citation: Osterberg, William P. “The Impact of Depositor Preference Laws,” Federal Reserve Bank of Cleveland, Economic Review, vol. 32, no. 3, pp. 02-11, 09.01.1996.

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