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Working Paper

Depositor Preference and the Cost of Capital for Insured Depository Institutions

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Depositor-preference laws provide depositors with a claim on a failed depository institution’s assets that is senior to unsecured general creditor claims. Therefore, depositor preference is correctly viewed as changing the capital structure of banks and thrifts and, consequently, these laws will affect the cost of capital for depositories. However, depositor preference will not have an impact on the total value of banks and thrifts unless deposit insurance is mispriced.
03.01.1994ISSN 2573-7953 WP 94-04DOI 10.26509/frbc-wp-199404

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Osterberg, William P., and James B. Thomson. 1994. “Depositor Preference and the Cost of Capital for Insured Depository Institutions.” Federal Reserve Bank of Cleveland, Working Paper No. 94-04. https://doi.org/10.26509/frbc-wp-199404