Abstract: This paper presents an intuitive and analytical model of how the
federal safety net affects banks' cost of funds. Emphasis is placed on
distinguishing between fixed and marginal costs in banking and on the
implications of the model for measuring the subsidy. Empirical
results strongly suggest that the safety net has benefitted banks and
that over recent years bank holding companies have tended to move
activities into a bank or a bank subsidiary. We conclude that
limiting extension of the safety net subsidy should be a serious
concern when designing strategies for expanding bank activities.
Keywords: Banks, safety net, deposit insurance, powers
Full paper (1965 KB PDF)
Home | Economic research and data | FR working papers | FEDS | 1997 FEDS papers
Accessibility
To comment on this site, please fill out our feedback form.
Last update: January 27, 1998
|