A classroom experiment with bank equity, deposit insurance, and bailouts. Issue 4 (1st October 2016)

• Record Type: Journal Article
• Authors: Hazlett, Denise
• Is Part Of: Journal of economic education. Volume 47:Issue 4(2016)
• Page Start: 317
• Page End: 323
• Publication Date: 2016-10-01
• Subjects: Bank capital -- classroom experiment -- deposit insurance -- financial crisis -- moral hazard; A2 -- E02 -- G01 -- G21 -- G28 -- G32 -- L51; Economics -- Study and teaching -- United States -- Periodicals; 330.071
• DOI: 10.1080/00220485.2016.1213678
• Languages: English
• ISSNs: 0022-0485

Abstract

ABSTRACT: In this classroom experiment, students see how low bank equity requirements can interact with deposit insurance to encourage excessive risk-taking. The experiment fills a niche Admati and Hellwig (2013 ) have noted: citizens in a democracy must understand why bank owners argue for low equity requirements and why society as a whole is better off with higher requirements. Instructors can run the experiment in principles of economics courses to introduce the topics of banking and financial crisis, or in advanced courses to promote discussion of financial reform. It takes about 45 minutes to run and debrief, and requires no computerization.