Deposit insurance legislation currently being considered by the U.S. Congress proposes to increase the nominal level of insurance coverage for the first time since the passage of DIDMCA in 1980. Since that time, the fixed nominal amount of coverage has resulted in an erosion of the real amount of coverage due to continued inflation. This paper examines the relationship between real coverage and bank risk at individual banks over the last 10 years. The findings suggest that the change in real coverage over time has not been associated with a change in risk at commercial banks. This results implies that legislation proposing to increase nominal and real coverage will not result in increased moral hazard behavior at banks.
Velikova, Marieta and Rogers, Kevin
"REAL DEPOSIT INSURANCE COVERAGE AT U.S. COMMERCIAL BANKS,"
Journal of Business & Leadership (2005-2012): Vol. 3
, Article 18.
Available at: http://scholars.fhsu.edu/jbl/vol3/iss1/18