The New Depositor Preference Act: Time Inconsistency in Action

This paper presents issues arising from the enactment of legislation that changes the priority ordering of claims by uninsured depositors and the FDIC in the resolution of costly failed insured banks and thrifts. Under the legislation, uninsured domestic depositors and the FDIC receive preference in the payment of their claims in the resolutions of failed insured institutions over both foreign depositors and general creditors. As a result of the legislation, one can expect changes in the behavior of nonpreferred claimants.