IF HISTORY COULD BE RERUN - THE PROVISION AND PRICING OF DEPOSIT INSURANCE IN 1933

This paper examines cross-subsidy, moral hazard, and bank liability issues related to the provision of federal deposit insurance by ''rerunning'' its implementation, i.e., determining fair premium values, over the period 1927-1932. The pre-1933 period was characterized by historically high asset-price volatility, a large number of bank failures, and a weak federal safety net. In this economic context, we find a high degree of self-insurance on the part of the banks in our sample, both in terms of higher overall capital levels and a strong correlation between capital levels and asset volatility. Potentially large, regional cross-subsidies among banks were also found. Journal of Economic Literature Classification Number: G21. (C) 1995 Academic Press, Inc.