Contagion-induced bank runs are widely viewed as the cause of widespread bank failures during the Great Depression. Federal deposit insurance was created in 1934 to prevent future contagion-generated bank failures. Yet the cycle of bank failures appears quite similar to an industrial shakeout, a...

To minimize their losses, creditors of insolvent nonbank firms have every incentive to force prompt closure, thereby ensuring that assets of such firms are redirected to more valuable uses. For banks and savings institutions, however, deposit insurance blunts the incentive by removing...

Failure rates of small commercial banks during the banking crisis of the late 1980s were about 7.6%, which is significantly higher than the 5.7% failure rate during the recent crisis. We compare failure rates in the two periods using a statistical model that allows us to decompose the effect of...

Two of the most significant banking reforms to come out of the banking problems in the late 1980s and early 1990s were the increase in capital requirements from Basel 1 and the prompt corrective action (PCA) provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991...