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Depositor-Preference Laws and the Cost of Debt Capital

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Under depositor-preference laws, depositors' claims on the assets of failed depository institutions are senior to unsecured general-creditor claims. As a result, depositor preference changes the capital structure of banks and thrifts, thereby affecting the cost of capital for depositories. Depositor preference has no impact on the total value of banks and thrifts, however, unless deposit insurance is mispriced.


Suggested citation: Osterberg, William, and James Thomson. “Depositor-Preference Laws and the Cost of Debt Capital,” Federal Reserve Bank of Cleveland, Economic Review, vol. 35, no. 3, pp. 10-20, 07.01.1999.

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