Depositor preference and the cost of capital for insured depository institutions

Abstract

An analysis of the impact of depositor preference laws on the cost of debt capital for banks and on the value of FDIC deposit guarantees. The authors find that depositor preference laws increase the value of uninsured deposit claims and reduce the size of the FDIC subsidy, but will not affect the total value of banks and thrifts unless deposit insurance is mispriced.Bank failures ; Bank capital