2. “Analysis of Federal Deposit Insurance Corporation (FDIC) And the Bank Failure Rate” Heather Squires

3. FDIC 1933- Present Established in the Banking Act of 1933 as a result of bank panics during the Great Depression Today: “FDIC supervises banks, insures deposits up to $100,000 and helps maintain a stable and sound banking system” (FDIC Website)

4. Why? Bank Failures during the 1980’s were caused by the FDIC, or were they? Incentives towards risk~ Moral Hazard Who pays? FDICIA in 1991

5. Previous Research Barth and Brumbaugh (early 1990’s) Claimed the FDIC caused the increase in bank failure as a result of insurance rising from $40,000 to $100,000 FDIC led to a “heads I win, tails the federal insurer loses” Concluded bank failures were a result of the federal deposit insurance

6. More Research Cebula and Belton (1997) Follow-Up study on the effects of the FDICIA Again found FDIC was a major component of bank failures Determined FDICIA had directly decreased the bank failure rate

7. Still More Research Saltz (He had to be different) Didn’t agree with the previous researchers and did it his way Cointegration technique, eigenvalues, trace effects~ TOO MUCH CALCULUS! What did he find after all of that work? The SAME thing~ FDIC caused bank failures during the 1980’s

8. My Model A simple linear regression

9. Results 1981-1991

10. More… 1981-2005

11. Finally… 1992-2005

12. Did the FDICIA work? Bank failure rates have decreased

13. Conclusions Since 1991 the bank failure rate has decreased significantly Economic Boom Low Interest Rates Higher Capital to Asset Ratios

14. What’s Next? Federal Deposit Insurance Improvement Act of 2005 Removed all restrictions on imposing risk-based premiums Now insures up to $250,000 for retirement accounts

15. Questions?