The Differential Effects of Deregulation on Savings and Loan Associations and Banks (original) (raw)
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The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 was intended to enhance the safety of savings institutions. We develop and test a model showing how institution-specific characteristics modify the overall effect of FIRREA on the risk of savings institutions. Our model incorporates market risk, interest rate risk, and exposure to real estate conditions. We find that risk shifts vary across savings institutions. Larger institutions exhibit no obvious shift in risk, while smaller institutions show reduced risk since FIRREA. Moreover, the effects are more favorable for institutions that maintained higher capital levels in response to FIRREA's provisions.
The Effect of the Federal Deposit Insurance Corporation Improvement Act of 1991 on Bank Stocks
Journal of Financial Research, 1996
In this study we use a multivariate regression model to investigate the effect of the passage of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 on returns to the shareholders of bank-holding companies. The empirical results suggest that the shareholders of well-capitalized banks benefited from the enactment of the FDIC lA, while those of undercapitalized banks experienced significant losses during the announcement period. However, the shareholders of adequately capitalized banks did not gain or lose significantly from the enactment of the FDICIA. The FDICIA also affected stock returns of large and small bank-holding companies similarly. 'Bank regulators classify depositories into five categories based on the level of capital: (I) well capitalized: an institution that significantly exceeds the required capital level for each capital standard; (2) adequately capitalized: an institution that meets the required minimum level of capital for each capital standard; (3) undercapitalized: an institution that fails to meet the required capital standards; (4) significantly undercapitalized:
The Journal of Finance, 1990
This paper evaluates the effects of events leading to the passage ofthe Garn-St. Germain Depository Institutions Act of 1982. The evidence suggests that the call for reform by President Reagan's Housing Commission and the Senate passage of the bill produced positive abnormal returns to stockholders of large savings and loans and commercia! banks. Stockholders of small S&Ls and banks, on the other hand, generally experienced negative abnormal returns. Furthermore, when hopes of passage of the Act faded, significant negative (positive) abnormal returns were experienced by stockholders of large (small) S&Ls and banks.
US banking sector risk in an era of regulatory change: A bivariate GARCH approach
2000
This paper assesses the impact of regulatory change on the risk and returns of the U.S. banking industry. The impact of ®ve major regulatory changes on banking sector risk was assessed using daily data for eighteen major U.S. regional banks, money center banks and savings and loan type depository institutions. Risk in this case was proxied via the use of an M-GARCH model which generates time dependent conditional beta estimates. The evidence obtained suggests that the impact of deregulation and reregulation on banking sector risk is case speci®c. Further, the results obtained show that the market model incorporating dummy variables, which has proven so popular amongst existing studies, discards important information about the variability of beta which the time varying conditional betas capture.
Stock market reactions to the depository institutions deregulation and monetary control act of 1980
Journal of Banking and Finance, 1989
This paper evaluates the effects of events leading to the passage of the Depository Institufio~ Deregulation and Monetary Control Act of 1980. The evidence suggests that the initial proposal of the Act by then President Carter, and the final passage of the Act by the House of Representatives, produced positive abnormal returns to stockholders of large commerc:-tal banks. Stockholders of small commerda| banks and small savings and loans, on the other hand, generally experienced negative abnormal returns. Furthermore, when hopes of passage of the Act faced significant negative (positive) abnormal returns were experienced by stockholders of large (small) commercial banks.
The Quarterly Review of Economics and Finance, 2002
In a partial-equilibrium model, removing a binding constraint creates value. However, in general equilibrium, the stakes of other parties in maintaining the constraint must be examined. In financial deregulation, the fear is that expanding the scope and geographic reach of very large institutions might unblock opportunities to build market power from informational advantages and size-related safety-net subsidies.
Ownership structure, deregulation, and risk in the savings and loan industry
Journal of Business Research, 1996
We provide evidence on two noncompeting hypotheses concerning risk in the savings and loan industry: (1) the ownership structure hypothesis which argues that stock associations operate with more risk than mutual associations, and (2) the deregulation hypothesis which argues that savings and loans take more risk in a deregulated environment. Evidence from data on individual savings and loans for the 1976-1986 period is consistent with both hypotheses. Savings and loan associations took more risk because of the demutualization of the industry and also took more risk because regulations permitted greater risk-taking. Our results thus suggest that the thrift crisis may have reflected a unique confluence of structural and
Journal of Banking & Finance, 1992
This paper evaluates the stock market effects of events leading to the passage of the Financial Institutions Reforms, Recovery, and Enforcement Act of 1989. The evidence suggests that the signing of the Act by President Bush produced positive abnormal returns for both banks and S&Ls and that the addition of tougher capital standards produced positive returns for S&Ls. In addition, the Act increased the risk of both banks and S&Ls.
The impact of FDICIA on bank returns and risk: Evidence from the capital markets
Journal of Banking & Finance, 2001
This study examines the impact of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 on bank stock returns and risk. We ®nd that FDICIA had a generally positive eect on bank stock returns and resulted in a signi®cant reduction in bank risk. The extent of the risk reduction varies based on the capitalization, size, and credit risk of the institutions with poorly capitalized, large, and high credit risk banks experiencing the greatest risk reduction. The results obtained using two separate control groups also bolster the conclusion that FDICIAÕs passage resulted in a significant decline in bank risk. Ó