Skip Navigation

This Article
Right arrow Full Text (PDF)
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Similar articles in ISI Web of Science
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrow Search for citing articles in:
ISI Web of Science (1)
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Birchler, U. W.
Right arrow Search for Related Content
Related Collections
Right arrow G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Right arrow G33 - Bankruptcy; Liquidation
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

Rev Fin 2000; 13:813-840
© 2000 the Society for Financial Studies

Article

Bankruptcy priority for bank deposits: a contract theoretic explanation

UW Birchler
Swiss National Bank, PO Box, CH-8022 Zurich, Switzerland
e-mail: urs.birchler@snb.ch

Abstract

Over the past decade several countries, including the US, have introduced or redesigned legislation that confers priority in bankruptcy upon all or some bank deposits. We argue that in the presence of contracting costs such rules can increase efficiency. We first show in a private information model that a borrower can reduce overall costs of finance by letting informationally heterogeneous lenders choose between junior and senior debt. In particular, we find that debt priorities reduce socially wasteful information gathering by investors. We then argue why, particularly in banking, legal standardization of debt priorities may be superior to bilateral private arrangements.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.