Search Results
How do reciprocal deposit networks interact with deposit insurance?
Reciprocal deposit networks are designed to increase the total amount eligible for FDIC deposit insurance. In recent years, growth of the networks has accelerated, prompting a re-evaluation of the existing deposit insurance framework and raising at least three questions.
Working Paper
Bailing Out (Firms') Uninsured Deposits: A Quantitative Analysis
We document two novel stylized facts about uninsured deposits and bank failures: (i) firms hold more uninsured deposits than households, and (ii) uninsured depositors do not suffer losses in 94 percent of bank failures. We construct a quantitative general equilibrium model designed around these facts. We characterize the marginal benefits of increased insurance for firms' and households' deposits separately, finding higher benefits for household insurance. Quantitatively, the welfare gains from increasing insurance arise primarily from the reduction in bank runs driven by the higher limit on ...
Working Paper
Origins of Too-Big-to-Fail Policy
This paper traces the origin of the too-big-to-fail problem in banking to the bailout of the $1.2 billion Bank of the Commonwealth in 1972. It describes this bailout and those of subsequent banks through that of Continental Illinois in 1984. Motivations behind the bailouts are described with a particular emphasis on those provided by Irvine Sprague in his book Bailout. During this period, market concentration due to interstate banking restrictions is a factor in most of the bailouts, and systemic risk concerns were raised to justify the bailouts of surprisingly small banks. Sprague?s ...
Working Paper
Stablecoin-on-Creditor Violence
The GENIUS Act of 2025 rewrites the priority and estate-property rules that govern the failure of a payment stablecoin issuer. It removes an issuer's required reserves from the bankruptcy estate and grants stablecoin holders a superpriority, capped at any reserve shortfall, over what remains. The commentary so far asks what happens inside bankruptcy once an issuer files—whether holders are actually paid and whether the case can be administered. This article identifies a different problem that arises before a filing. Because reserve assets leave the estate the moment they back a coin, a ...
Speech
A level playing field for deposit insurance
Dallas Fed President Lorie K. Logan delivered these remarks at the Dallas Fed and Atlanta Fed conference, “Exploring Conventional Bank Funding Regimes in an Unconventional World.”
Working Paper
Banking panics and deflation in dynamic general equilibrium
This paper develops a framework to study the interaction between banking, price dynamics, and monetary policy. Deposit contracts are written in nominal terms: if prices unexpectedly fall, the real value of banks' existing obligations increases. Banks default, panics precipitate, economic activity declines. If banks default, aggregate demand for cash increases because financial intermediation provided by banks disappears. When money supply is unchanged, the price level drops, thereby providing incentives for banks to default. Active monetary policy prevents banks from failing and output from ...
Working Paper
Can a Bank Run Be Stopped? Government Guarantees and the Run on Continental Illinois
This paper analyzes the run on Continental Illinois in 1984. We find that the run slowed but did not stop following an extraordinary government intervention, which included the guarantee of all liabilities of the bank and a commitment to provide ongoing liquidity support. Continental's outflows were driven by a broad set of US and foreign financial institutions. These were large, sophisticated creditors with holdings far in excess of the insurance limit. During the initial run, creditors with relatively liquid balance sheets nevertheless withdrew more than other creditors, likely reflecting ...
Working Paper
Risky Mortgages, Bank Leverage and Credit Policy
Two key channels that allowed the 2007-2009 mortgage crisis to severely impact the real economy were: a housing net worth channel, as defined by Mian and Sufi (2014), which affected the wealth of leveraged households; and a bank net worth channel, which reduced the ability of financial intermediaries to provide credit. To capture these features of the Great Recession, I develop a DSGE model with balance-sheet constrained banks financing both risky mortgages and productive capital. Mortgages are provided to agents facing idiosyncratic housing depreciation risk, implying an endogenous default ...
Working Paper
The Subsidy Provided by the Federal Safety Net: Theory, Measurement, and Containment
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.
Working Paper
An Analytical Price of Stablecoin “Deposit” Insurance
With the passage of the GENIUS Act of 2025, stablecoins are poised to play a greater role in the U.S. financial system. Although very similar to bank deposits, stablecoins lack the government guarantees offered for bank deposits in the form of deposit insurance. This paper is the first to analytically derive the price of hypothetical “deposit” insurance for stablecoins. The price of this insurance is shown to be a function of the volatility of the stablecoin’s price (the price of debt), reflecting Merton’s (1977) deposit insurance pricing model. Empirical estimates of the price of ...