To What Extent Are Uninsured Depositors At Risk?
Raguse, Susan M.
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Recent bank failures prompt the important question, ''To what extent are uninsured depositors at monetary risk?" The purpose of this study is to examine the historical loss rates associated with being an uninsured/exposed depositor at a failed banking institution. This paper will also explore the returns on bank deposits compared to the returns of alternative marketable investments. The purpose of comparing the various marketable instruments to bank time deposits is to explore the amount of risk and return, measured through yearly average returns and standard deviation, associated with both. By using difference of means tests, as well as accounting for differences in maturities, it was proven in this study that the mean average return of CDs is statistically significantly higher than that of T-bills between 1986 and 2000. Thus, although investors are at monetary risk in the event of a bank failure, they are being compensated. Results suggest that further research is needed to explain the amount of specific CD interest rates prior to an institution's failure.