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Working Paper

Depositor Preference and the Cost of Capital for Insured Depository Institutions

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.

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