Federal Deposit InsuranceCorporation• Center for Financial Researchh
Sanjiv R. Das
Darrell Duffie
Nikunj Kapadia
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
June 2005
Andrew Davenport
Kathleen McDill
The Depositor behind the Discipline: A Micro-level Case Study
of Hamilton Bank
FDIC Center for Financial Research
Working Paper
No. 2005-07
Sanjiv R. Das
Darrell Duffie
Nikunj Kapadia
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
June 2005
Andrew Davenport
Kathleen McDill
The Depositor behind the Discipline: A Micro-level Case Study
of Hamilton Bank
FDIC Center for Financial Research
Working Paper
No. 2005-07
The Depositor behind the Discipline:
A Micro-level Case Study of Hamilton Bank
by
Andrew Mitsunori Davenport
Kathleen Marie McDill*
June 2005
FDIC Center for Financial Research Working Paper No. 2005-07
ABSTRACT
Though uninsured depositors are recognized as a source of market discipline, the possible
disciplinary effect of decisions made by fully insured depositors have gone largely unexamined.
Using proprietary administrative deposit data at the account level, this paper analyzes depositor
behavior at a recently failed institution. The results suggest that although uninsured deposits
exited at a greater rate than insured deposits, the vast majority of deposits withdrawn were fully
insured. Among types of deposit accounts, the rates of withdrawal for fully insured individual,
joint, and trust accounts were relatively high. Uninsured business account owners were highly
sensitive to the bank’s deteriorating condition. In contrast, owners of uninsured individual
retirement accounts effectively exerted no market discipline.
Key Words: depositor discipline, account types, uninsured, insured
JEL Classification: G20, G21, G28
CFR Research Programs: deposit insurance, policy and regulation
* Senior Financial Economists at the Federal Deposit Insurance Corporation. The opinions expressed in this paper
are ours and do not necessarily reflect those of the Federal Deposit Insurance Corporation. All errors are our own.
Email: ADavenport@fdic.gov, phone (202) 898-3859, fax: (202) 898-8500. We would like to thank Dennis Clague
and Ross Dierdorff for their substantial efforts in transforming raw account data into estimates of insured and
uninsured deposits suitable for analysis. We also thank Lynn Shibut for recognizing the potential analytical value of
these unique account-level data. We are grateful for the insights on bank closings in general and on the closing of
Hamilton in particular provided by Kathleen Halpin and Robert Schoppe. We thank Haluk Unal, Paul Kupiec, John
O’Keefe, Lynn Shibut, Mark Levonian and an anonymous referee for providing helpful comments and sharing their
considerable expertise. We also benefited from the comments of participants at the 2004 Western Economic
Association International conference, the Fall 2004 FDIC/JFSR Risk Transfer and Governance in the Financial
System conference, and the Basel Committee on Banking Supervision’s Workshop on Banking and Financial
Stability. We appreciate the exemplary research assistance provided by Doug Akers, Christine Brickman, Caroline
Crider, Sarah Kroeger, and Aja Lawrence.
A Micro-level Case Study of Hamilton Bank
by
Andrew Mitsunori Davenport
Kathleen Marie McDill*
June 2005
FDIC Center for Financial Research Working Paper No. 2005-07
ABSTRACT
Though uninsured depositors are recognized as a source of market discipline, the possible
disciplinary effect of decisions made by fully insured depositors have gone largely unexamined.
Using proprietary administrative deposit data at the account level, this paper analyzes depositor
behavior at a recently failed institution. The results suggest that although uninsured deposits
exited at a greater rate than insured deposits, the vast majority of deposits withdrawn were fully
insured. Among types of deposit accounts, the rates of withdrawal for fully insured individual,
joint, and trust accounts were relatively high. Uninsured business account owners were highly
sensitive to the bank’s deteriorating condition. In contrast, owners of uninsured individual
retirement accounts effectively exerted no market discipline.
Key Words: depositor discipline, account types, uninsured, insured
JEL Classification: G20, G21, G28
CFR Research Programs: deposit insurance, policy and regulation
* Senior Financial Economists at the Federal Deposit Insurance Corporation. The opinions expressed in this paper
are ours and do not necessarily reflect those of the Federal Deposit Insurance Corporation. All errors are our own.
Email: ADavenport@fdic.gov, phone (202) 898-3859, fax: (202) 898-8500. We would like to thank Dennis Clague
and Ross Dierdorff for their substantial efforts in transforming raw account data into estimates of insured and
uninsured deposits suitable for analysis. We also thank Lynn Shibut for recognizing the potential analytical value of
these unique account-level data. We are grateful for the insights on bank closings in general and on the closing of
Hamilton in particular provided by Kathleen Halpin and Robert Schoppe. We thank Haluk Unal, Paul Kupiec, John
O’Keefe, Lynn Shibut, Mark Levonian and an anonymous referee for providing helpful comments and sharing their
considerable expertise. We also benefited from the comments of participants at the 2004 Western Economic
Association International conference, the Fall 2004 FDIC/JFSR Risk Transfer and Governance in the Financial
System conference, and the Basel Committee on Banking Supervision’s Workshop on Banking and Financial
Stability. We appreciate the exemplary research assistance provided by Doug Akers, Christine Brickman, Caroline
Crider, Sarah Kroeger, and Aja Lawrence.