women s work sibling competition and children s school performance this research offers an interpretation of the relationship between fertility child spacing family resources and market work by mothers and the subsequent cognitive skills of grade schoolers as reported by their teachers first an approach to fertility as the outcome of a deliberate choice process is developed and then empirical evidence from a small panel of u s households first interviewed in 1975 76 when they had preschool children is presented in a 1981 82 reinterview a supplementary project was that of obtaining teacher ratings of school performance of individual children large family size as measured by the number of siblings of given age and sex in the household during preschool years in 1975 76 has an important negative impact on the child s subsequent grade school performance boy siblings in nearby age ranges have the most negative impact on performance while teenage siblings of either sex have no systematic adverse effect parental resources as measured by income education child care time and a mother s reduced market time are associated with greater cognitive skills and can offset the apparent disadvantage of having siblings in nearby age intervals there appears to be a significant tradeoff between a market career and a home career for women women who have more children spaced over wider age intervals and who devote more time to child care and less to market work presumably get more benefits from their home career in the form of enhanced child development on the other hand full time market work i e hours in the labor market for pay is important for earnings growth of the mother mary corcoran greg duncan and michael ponza 1983 and family income has a favorable effect on school performance so the apparent choices facing women are more equivocal

the new economics of teachers and education rapidly growing costs of elementary and secondary education are studied in the context of the rising value of women s time the dramatic increase in direct costs of education per student in the past 3 decades is empirically linked to increasing demand and utilization of teacher and staff inputs attributable to growing market opportunities for women and changes in the structure of families on the supply side the flexibility option that female teachers who take temporary leaves do not suffer subsequent wage loss upon reentry is shown to be an important attraction of the teaching profession to women

the effect of changes in reserve requirements on bank stock prices abstract the present study re examines the tax burden effects of reserve requirements on bank profitability it differs from previous work in two ways 1 changes in stock prices rather than accounting data are used to measure profitability effects and 2 emphasis is placed on changes in reserve requirements as opposed to their level regarding the latter distinction two kinds of changes are considered 1 temporary changes in reserve requirements for the purpose of discretionary monetary policy and 2 more permanent changes in reserve requirement levels based on the event study methodology temporary changes were found to have little effect on security prices whereas more permanent changes had a stronger influence on bank stock prices reflecting a tax burden effect

reserve requirements bank share prices and the uniqueeness of bank loans abstract this study examines the impact of changes in reserve requirements on large banks stock returns it finds statistically and economically significant abnormal returns on the day following the announcement of such changes this finding is consistent with the notion that reserve requirements are a tax on deposits it indicates however that bank s shareholders bear at least part of the tax thus it does not support the hypothesis advanced by some authors that the tax falls exclusively on banks borrowers the evidence further suggests that part of the tax falls on demand depositors these findings undercut the case for the uniqueness of bank loans insofar as it is based on the incidence of the deposit tax

macroprudential policies capital flows and the structure of the banking sector abstract using a large sample of advanced and emerging market economies over the period 1999 2012 we examine the effectiveness of macroprudential policies mpps in managing cross border bank flows conditioning on the structure of the banking sector in the mpp implementing country we find that higher regulatory quality and a higher credit to deposit ratio increase the effectiveness of mpps while a higher cost to income ratio has the opposite effect if all three financial variables are evaluated at the median the marginal effect of our preferred mpp measure leads to a reduction of international bank inflows in percent of gdp by around half a percentage point and is only marginally significant however when the more enhanced 25th 10th percentiles of their respective distributions are considered we observe as a response to the same mpp measure a reduction of bank inflows by 3 44 5 39 percentage points that is highly statistically and economically significant additionally we find that the structure of the domestic banking sector determines spillovers from mpps across asset classes while spillovers from mpps across countries are a function of banking sector conditions both at home and abroad

how important are global factors for understanding the dynamics of international capital flows abstract we propose a dynamic factor model with time varying parameters and stochastic volatility to analyze the relationship between global factors and country specific capital flow dynamics studying a global sample of 43 countries from 1994 until 2015 we show that global co movement of macroeconomic financial and capital flow variables can explain a major share of country specific capital flow volatility and that the impact of these variables has become even more important in the aftermath of the 2008 2009 global financial crisis our results indicate that country specific changes in capital flows are strongly affected by fluctuations in global financial cycles and to some extent by global real business cycles we provide also some evidence that the exchange rate regime the stock of reserves prudent fiscal policy and more developed stock markets can insulate economies at least partially from the global financial cycle

financial integration capital mobility and income convergence recent studies have found that capital moves uphill from poor to rich countries and brings little or no growth dividend when it does flow into poor economies we show that europe does not conform to this paradigm in the european experience of financial integration capital has flown from rich to poor countries and such inflows have been associated with significant acceleration of income convergence analysing broader samples of countries we find that downhill capital flows tend to be observed above certain thresholds in institutional quality and financial integration but europe remains different even when allowing for such threshold effects and its experience is similar to that of interstate flows within the united states our findings are consistent with the notion that financial diversification reduces countries incentives to save in order to self insure against specific shocks abdul abiad daniel leigh and ashoka mody

what s different among banks abstract based on commercial paper being a nearly perfect substitute for certificates of deposits cds and cd reserve requirements creating a higher cost of funds for banks fama shows that the banking industry must have some monopoly power relative to other financial institutions his analysis does not resolve whether this monopoly power is vested in banks collectively vis a vis other financial institutions or if the monopoly power extends to the level of individual banks using an event study framework to examine the elimination of a reserve requirement we find significant evidence of monopoly power at the level of individual banks

the market valuation effects of reserve regulation abstract we demonstrate that the financial market s reaction to changes in reserve regulation implies that reserve requirements are an excise tax on banking activities changes in reserve requirements do not influence yields on treasury securities or returns on broad based portfolios of nonfinancial stocks and thus do not impound new information about monetary policy moreover changes in reserve requirements have an impact on nonbank financial firms that is opposite in sign to that of banks this suggests that reserve requirements shift the locus of some financial activities from the banking sector to the nonbank sector of the financial system

school expenditures and post schooling earnings evidence from high school and beyond studies based on inputs measured at the state level generally report that school expenditures have substantial effects on students adult wages whereas studies based on less aggregated measures report small effects the author uses wage data from high school and beyond to analyze this discrepancy and to estimate the effect of school expenditures on students post schooling earnings the author finds that the discrepancy in the literature stems mostly from two factors measurement error in district level expenditures and omitted state effects in the earnings regression the author also finds that the effect of school expenditures on earnings is significant but small a 10 increase in school spending would increase students adult wages by only 0 68 copyright 1996 by mit press

does macro prudential regulation leak evidence from a uk policy experiment the regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro prudential regimes internationally for such regulation to be effective in controlling the aggregate supply of credit it must be the case that i changes in capital requirements affect loan supply by regulated banks and ii unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks this paper examines micro evidence lacking to date on both questions using a unique data set in the uk regulators have imposed time varying bank specific minimum capital requirements since basel i it is found that regulated banks uk owned banks and resident foreign subsidiaries reduce lending in response to tighter capital requirements but unregulated banks resident foreign branches increase lending in response to tighter capital requirements on a relevant reference group of regulated banks this leakage is substantial amounting to about one third of the initial impulse from the regulatory change

market evidence on the effective maturity of bank assets and liabilities the recent years increase in interest rate volatility has intensified concern over the exposure of commercial banks to interest rate or funding risk since the effect of interest rate changes on the equity value of a bank depends on the maturity or duration of the bank s assets and liabilities assessing an individual bank s interest rate risk exposure requires information about the maturity composition of its portfolio it is difficult however to assess a bank s risk exposure from balance sheet data because several important asset and liability items have theoretically ambiguous effective maturities in a frictionless market a security s effective maturity will equal its stated maturity or time to repricing with market imperfections e g depositors transaction or information costs however the equilibrium cost of some deposit items may respond sluggishly or incompletely to market rate changes see hester and pierce 1975 or flannery 1982 such liabilities market values discounted at market rates would therefore fluctuate with the level of interest rates these liabilities are sometimes called core deposits which manifest sticky responses to market rate changes we define an asset or liability s effective maturity as the maturity of a fixed rate perfectly elastically supplied security with the same market value elasticity as the bank balance sheet item under consideration naturally a balance sheet item s effective maturity is the relevant determinant of its contribution to the bank s overall interest rate risk sensitivity

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

production and innovation when techniques are tacit the case of education abstract the central theme of this paper is that the conventional economic theory of production does not hold even approximately in a field like education after examining the result of input output studies in education and the effect of government attempts to enhance education effectiveness we provide a sketch of a new production theory for sectors where techniques are poorly articulated and idiosyncratic

schooling and economic well being the role of nonmarket effects standard estimates of the economic value of additional schooling based on earnings differences associated with differences in the level of schooling attained cover only a portion of the total effects of education that are valued by citizens we first identify a catalog of nonmarketed effects many of which have been recently studied by economists and then propose a procedure for estimating a willingness to pay value for these effects using empirical estimates of the magnitude of a selection of these effects found in the literature we calculate willingness to pay values using our proposed procedure these illustrative calculations suggest that standard estimates of the benefit of incremental schooling substantially understate the full value of such investments

human capital pricing equations with an application to estimating the effect of schooling quality on earnings this paper formulates and estimates alternative models for the pricing of labor services we present economic models that rationalize empirical specifications in the literature and we offer evidence on the validity of those specifications widely used efficiency units models of labor services are inconsistent with evidence from the u s labor market a model of heterogeneous skills provides a more accurate description of earnings data we present evidence that the pursuit of comparative advantage and selective migration are important features of the u s labor market when these features are included in the model the only support for an effect of schooling quality on earnings is through the return to college education three interactions are empirically important in explaining log wage equations a between schooling quality and education b between regional labor market shocks and education and c between region of residence and regionof birth because of this third interaction which can arise from comparative advantage in the labor market no unique quality effect on returns to education can be defined independently of the market in which it is used

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

capital flow management measures what are they good for abstract are capital controls and macroprudential measures related to international exposures successful in achieving their objectives assessing their effectiveness is complicated by selection bias countries which change their capital flow management measures cfms often share specific characteristics and are responding to changes in variables that the cfms are intended to influence this paper addresses these challenges by using a propensity score matching methodology we also create a new database with detailed information on weekly changes in controls on capital inflows capital outflows and macroprudential measures related to international transactions from 2009 to 2011 for 60 countries results show that these macroprudential measures can significantly reduce some measures of financial fragility most cfms do not significantly affect other key targets however such as exchange rates capital flows interest rate differentials inflation equity indices and different volatilities one exception is that removing controls on capital outflows may reduce real exchange rate appreciation therefore certain cfms can be effective in accomplishing specific goals but most popular measures are not good for accomplishing their stated aims

market power and banking failures abstract we investigate whether more competition in the banking industry necessarily results in a higher probability of banking failures as it is often suggested in our model borrowers face a moral hazard problem which induces banks to choose between costly monitoring and credit rationing we show that investment decreases with the lending rate and increases with monitoring effort since incentives to monitor are enhanced by market power the relationship between market structure and investment is ambiguous in the presence of non diversifiable risk and decreasing returns to scale more investment implies higher failure rates as a result the relationship between market power and banking failures is ambiguous

an analysis of the impact of deposit rate ceilings on the market values of thrift institutions this paper examines the impact of changes in deposit interest rate regulations on the common stock values of savings and loan institutions the analysis indicates that stockholder owned savings and loans s l s have experienced statistically significant declines in equity market values at the announcement of the removal of ceilings on certain consumer small saver certificate accounts and the introduction of short term variable rate money market certificates we find the evidence to be consistent with the hypothesis that s l s have earned economic rents from restrictions on interest rates paid to small saver accounts and that relaxation of interest rate ceilings has reduced these rents a central issue in the economics of regulation is whether regulators behave in a way that primarily benefits the economic agents whose actions they are supposed to regulate the proposition that regulation is demanded and acquired by the regulated and that regulations are designed and administered primarily for their benefit was originally put forth by stigler 19 and has come to be known as the capture theory of regulation an alternative view is that regulators adopt policies which serve some other perhaps public or possibly the regulators own interest and that administration of these policies does not benefit the regulated entities this paper examines the regulation of savings and loan associations deposit interest rates and reports evidence pertaining to the impact of the administration of regulation regulation of interest rates paid to depositors in federally insured savings and loan associations began in 1966 since that time several changes in the maximum allowed interest rates deposit rate ceilings have been made these changes present an opportunity to observe the impact of one form of regulatory action on savings and loan institutions deposit rate regulation has been the subject of extensive previous research the empirical investigations have focused primarily on two issues 1 the allocational efficiency and wealth redistribution effects of rate ceilings and 2 the impact of deposit rate ceilings on the flow of funds into the residential

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

the information content of discount rate announcements and their effect on market interest rates this paper presents evidence that throughout the 1973 85 period the federal reserve systematically used certain types of discount rate a nnouncements to signal changes in its policy instrument the federal funds rate market participants understood the signals contained in d iscount rate announcements and used them to revise their expectations of the funds rate these revisions in funds rate expectations caused movements in treasury bill rates copyright 1988 by ohio state university press

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

financial intermediation and the optimal tax system in this paper a stylized general equilibrium model is constructed to analyze the relative efficiency of taxing financial intermediaries a crucial feature of the model is that tax collection costs are endogenous i e they result from primitive assumptions about information and transaction costs instead of being assumed ad hoc the model provides useful insights into the welfare costs and incidence of banks reserve requirements or equivalently of a tax on deposits in particular it is shown that a tax on bank deposits can be part of an optimal tax system provided banks monopoly power is significant however if the banking industry is perfectly competitive the first dollar of revenue is more efficiently collected by a uniform capital income tax although a strictly positive welfare loss is incurred

follow the money quantifying domestic effects of foreign bank shocks in the great recession the financial crises have focused consider able academic and policy attention on the roles of foreign banks in transmitting shocks and creating vulnerability for host or parent countries adverse consequences are presumed and a premise of their destabilizing behavior in particular surrounding the branches of foreign banks has taken hold global banks actively allocate funds across their banking organizations in normal times and in stress periods cetorelli and goldberg forthcoming during the great recession some for eign locations of us banks were core investment markets that continued as destinations for funding while other foreign locations served as core funding markets that would send even larger net flows to their parent banks following parent balance sheet disturbances cetorelli and goldberg 2011b in this paper we provide complementary evidence focusing on the perspective of a host country we analyze the activity of foreign banks

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

does school quality matter returns to education and the characteristics of public schools in the united states this paper estimates the effects of school quality measured by the pupil teacher ratio average term length and relative teacher pay on the rate of return to education for men born between 1920 and 1949 using earnings data from the 1980 census we find that men who were educated in states with higher quality schools have a higher return to additional years of schooling rates of return are also higher for individuals from states with better educated teachers and with a higher fraction of female teachers holding constant school quality measures however we find no evidence that parental income or education affects average state level rates of return

capital flow deflection abstract this paper focuses on the coordination problem among countries imposing controls on capital inflows in a simple model of capital flows and controls we show that inflow restrictions distort international capital flows to other countries and that in turn such capital flow deflection may lead to a policy response we then test the theory using data on inflow restrictions and gross capital inflows for a large sample of developing countries between 1995 and 2009 our estimation yields strong evidence that capital controls deflect capital flows to other countries with similar economic characteristics notwithstanding these strong cross border spillover effects we do not find evidence of a policy response

foreign banks trends and impact over the past two decades foreign banks have become much more important in domestic financial intermediation heightening the need to understand their behavior we introduce a new comprehensive database made publicly available on bank ownership including the home country of foreign banks for 5 324 banks in 137 countries over the period 1995 2009 we document large increases in foreign bank presence in many countries but with substantial heterogeneity in terms of host and banks home countries bilateral investment patterns and bank characteristics in terms of impact we document that the relation between private credit and foreign bank presence importantly depends on host country and banks characteristics specifically foreign banks only seem to have a negative impact on credit in low income countries in countries where they have a limited market share where enforcing contracts is costly and where credit information is limited available and when they come from distant home countries this shows that accounting for heterogeneity including bilateral ownership is crucial to better understand the implications of foreign bank ownership

domestic credit growth and international capital flows during the pre crisis period europe experienced substantial cross country variation in domestic credit growth and cross border capital flows we investigate the inter relations between domestic credit growth and international capital flows during the period 1993 2008 with a special focus on the boom period of 2003 2008 we establish that domestic credit growth in european countries is strongly related to net debt inflows but not to net equity inflows this pattern also holds for an extended sample of 54 advanced and emerging economies

cross country experiences and policy implications from the global financial crisis the financial crisis of 2007 2008 is rooted in a number of factors some common to previous financial crises others new analysis of post crisis macroeconomic and financial sector performance for 58 advanced countries and emerging markets shows a differential impact of old and new factors factors common to other crises like asset price bubbles and current account deficits help to explain cross country differences in the severity of real economic impacts new factors such as increased financial integration and dependence on wholesale funding help to account for the amplification and global spread of the financial crisis our findings point to vulnerabilities to be monitored and areas of needed national and international reforms to reduce risk of future crises and cross border spillovers they also reinforce a sad state of knowledge much of how crises start and spread remains unknown stijn claessens giovanni dell ariccia deniz igan and luc laeven

banking market structure and financial stability evidence from the texas real estate crisis in the 1980s abstract this paper examines the relationship between banking market structure and financial stability using data on thrifts a type of banking institution specializing in residential mortgage lending i test two related hypotheses first competition reduces franchise value second reduced franchise value induces risk taking testing the second hypothesis exploits predictions that when hit by an exogenous shock the slope of risk with respect to franchise value becomes more negative because thrifts adopt bang bang strategies and choose minimal or maximal risk using the texas real estate collapse in the 1980s as a natural experiment i find evidence supporting both hypotheses

schools and housing values this study combines historical and quantitative methods to determine the market response to a major nineteenth century american urban architectural form the speculatively built row house the paper estimates a hedonic price index which decomposes the

women in the labor market and in the family t here are two themes in this paper the first an exercise in revisionist history argues that the conventional wisdom of an absence of any substantial labor market progress for women is mistaken instead throughout this century women s wages have been steadily rising relative to those of men a progress likely to accelerate in the next few decades our second theme contends that this labor market progress is not enough alongside their labor market advances the relative economic plight of many women is worsening the downside news is the increasing feminization of poverty a reflection of the growing instability of the american family

production of educational output time series evidence from socioeconomically heterogeneous populations the case of south africa 1927 1993 a number of competing reasons have been advanced for this divergence of findings since standardized test scores and earnings are two distinct outcomes school quality may simply have different impacts on the two outcome measures earnings studies are frequently argued to have insufficient controls for family background variables the effects of local labor market conditions and self selection effects present in samples and earnings studies and school achievement studies tend to employ different types of data with earnings studies tending to rely on historical information and school achievement studies on contemporaneous data the last of these reasons for divergent results between earnings and standardized test score studies is potentially important in pointing to the significance of lags in the impact of schooling inputs on outputs 2 this article furthers understanding of the link between inputs and outputs of the educational production process in contrast to earlier studies our article employs time series data in order to investigate the link between educational inputs and outputs and does so over a relatively long time run from 1910 to 1993 strong results emerge from our analysis we find that educational inputs matter in the determination of educational outputs in the case of south africa

macroprudential policies and housing prices a new database and empirical evidence for central eastern and southeastern europe several countries in central eastern and southeastern europe used a rich set of prudential instruments during the recent credit and housing boom and bust cycles we construct a comprehensive database of these policy measures covering 16 countries at a quarterly frequency we use this database to investigate whether the policy measures had an impact on housing price inflation the measures that appeared to be effective were capital measures minimum capital adequacy ratio maximum ratio of lending to households to share capital and nonstandard liquidity measures marginal reserve requirements mrrs on foreign funding mrrs linked to credit growth

tools for managing financial stability risks from capital inflows abstract we examine whether macroprudential policies and capital controls can enhance financial stability in the face of the risks typically associated with large capital inflows we construct new indices of foreign currency fx related prudential measures domestic prudential measures and financial sector specific capital controls for 51 emerging market economies over the period 1995 2008 our results indicate that both capital controls and fx related prudential measures are associated with a lower proportion of fx lending in total domestic bank credit and with a lower proportion of portfolio debt in total external liabilities other prudential policies appear to help restrain the intensity of aggregate credit booms experience from the global financial crisis suggests that prudential and capital control policies in place during the boom enhanced economic resilience during the bust

the quality of schooling quantity alone is misleading although much research discusses the quantity of schooling as an effective impact on productivity and earnings most such research leaves out the idea of the quality of schooling which may cause biases in the estimated returns to schooling this paper consequently attempts to extend the standard mincerian approach to incorporate school quality as well as quantity it demonstrates how exclusion of quality in the standard procedure may cause biases in the estimated returns to years of schooling probably in the upward direction the paper explores the implications of this extension of the standard model for the case of young brazilian males it shows that the estimate of the private return to years of schooling using the preferred quality inclusive specification is only one half the estimate using the standard procedure indicating substantial upward bias in the standard estimates it further outlines a method for estimating a social return to quality and finds that it exceeds substantially the social return to quantity the paper then shows why this in turn suggests there may be an equity productivity trade off in schooling investments

on the rate of return to schooling quality empirical evaluation of the effect of school quality or type and amount of resources per student on adult earnings requires a conceptual framework a model of the returns to schooling in a simple human capital growth context is extended to illustrate how factors such as consumption benefits of students parental concern over equity between siblings and use of schools to facilitate parental labor supply can alter the apparent return to school quality the need for microlevel time diary and other data on human capital formation in both classrooms and families is highlighted copyright 1996 by mit press

deposit insurance and wealth effects the value of being too big to fail this paper investigates the effect on bank equity values of the comptroller of the currency s announcement that some banks were too big to fail and that for those banks total deposit insurance would be provided using an event study methodology we find positive wealth effects accruing to tbtf banks with corresponding negative effects accruing to non included banks we demonstrate that the magnitude of these effects differed with bank solvency and size we also show that the policy to which the market reacted was that suggested by the wall street journal and not that actually intended by the comptroller the role of deposit insurance has become a topic of increasing debate advocates argue that by removing the incentive to run deposit insurance protects individual financial institutions from instability in the intermediation process thereby providing stability to the financial system as a whole 1 the recent rise in bank failures and the concomitant crises in the s l industry however demonstrate that this stability is not guaranteed moreover critics note that deposit insurance may introduce incentive problems and wealth effects into the financial system both of which can impede the effective functioning of any deposit insurance system these problems have prompted concern about the structure of the current deposit insurance system and have led to numerous proposals regarding its restructuring 2 this paper investigates one aspect of this debate by analyzing the effect on bank equity values of the policy decision to insure completely some banks but not others specifically in september 1984 the comptroller of the currency testified before congress that some banks were simply too big to fail tbtf and that for those banks total deposit insurance would be provided while not explicitly naming the banks the comptroller admitted that this policy would apply to the eleven largest banks using an event study methodology we analyze