The federal deposit insurance system of the United States was instituted as a result of severe financial crises in the United States and was intended to prevent the recurrence of some of the evils of such crises, specifically those resulting from bank deposit losses. Since the Federal Deposit Insurance Corporation (FDIC) was established in 1934, the United States has not experienced banking panics or harmful effects on the economy due to widespread destruction of bank deposits. As a result, there is a fairly widespread feeling that the present deposit insurance system has been a success. If prevention of panics and large-scale deposit destruction are the only criteria for success, this judgment may be justified, although, if the insurance system uses resources, it must be proved that panics and deposit losses would be unacceptably frequent or large in its absence.

[This paper deals with simultaneous estimation of supply and demand functions for money in the United States. It gives special attention to supply formulations relating the money stock to maximum possible money stocks and to demand functions incorporating the product of national income and the rate of interest. The estimations test and attempt to improve on these formulations, and they provide evidence on the effects of changing measurement techniques of economic time series. Specifically, substantial differences emerge between estimates using quarterly averages of daily data on stock and flow variables and similar estimates using one-day end-of-quarter figures to characterize a series over a quarter. In the context of this investigation, quarterly average data appear superior in describing the true economic series, as at least some a priori judgments would suggest.]