On the Shareholder Wealth Effects of Deposit Insurance Premium Revisions on Large, Publicly Traded Commercial Banks

Biswas, Rita; Fraser, Donald R.; Hebb, Gregory M.

doi:10.1111/j.1475-6803.2000.tb00740.x

“…The TBTDA hypothesis also predicts that events that presage or announce increases (decreases) in FDIC deposit-insurance premiums would lower (raise) returns on the stock of large and more-leveraged institutions more than it would affect the stock of other banking firms. Across ten 1990-1991 premiumincrease events and five 1993-1995 premium-decrease events, this is the pattern that Biswas, Fraser, and Hebb (2000) observe.…”

Section: Summary and Implicationssupporting

confidence: 66%

Event-study evidence of the value of relaxing long-standing regulatory restraints on banks, 1970–2000

Carow

¹

,

Kane

²

2002

The Quarterly Review of Economics and Finance

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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. This paper reviews and extends event-study evidence about the distribution of the benefits and costs of relaxing longstanding geographic and product-line restrictions on U.S. financial institutions. The evidence indicates that the new financial freedoms may have redistributed rather than created value. Event returns are positive for some sectors of the financial industry and negative for others. Perhaps surprisingly, where customer event returns have been investigated, they prove negative.

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Bank moral hazard and the introduction of official deposit insurance in Canada

Gueyié

¹

,

Lai

²

2003

International Review of Economics & Finance

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Event-Study Evidence of the Value of Relaxing Longstanding Regulatory Restraints on Banks, 1970-2000

Carow

¹

,

Kane

²

2001

View full text Add to dashboard Cite

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. This paper reviews and extends event-study evidence about the distribution of the benefits and costs of relaxing longstanding geographic and product-line restrictions on U.S. financial institutions. The evidence indicates that the new financial freedoms may have redistributed rather than created value. Event returns are positive for some sectors of the financial industry and negative for others. Perhaps surprisingly, where customer event returns have been investigated, they prove negative. Thirty years ago, opportunities for U.S. banks to expand their geographic reach and product line were tightly constrained by charter limitations and by state and federal laws governing branch banking and holding-company affiliation. The idea that, within a single generation, large U.S. banks could become nation-spanning, superpowered financial conglomerates seemed an academic pipe dream. In 1970, commercial banks could be distinguished from other kinds of financial institutions by two unique capacities: their right to offer demand deposits and their ability to make commercial loans. Restrictions on thrift, securities, insurance, and sales-finance companies made it hard for these and other kinds of nonbank institutions to offer close substitutes for banking's signature products. This paper seeks to clarify how and why technological change undermined and finally demolished geographic and product-line constraints on U.S. financial institutions and to review event-study evidence about the intersectoral distribution of the benefits and costs of relaxing particular restrictions. The evidence indicates that the demolition of these restraints intensifies public-policy concerns about the extent to which market power may be generated by large-bank mergers and safety-net subsidies that increase as an institution reaches megasize and megacomplexity.

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On the Shareholder Wealth Effects of Deposit Insurance Premium Revisions on Large, Publicly Traded Commercial Banks

Cited by 4 publications

References 19 publications

Event-study evidence of the value of relaxing long-standing regulatory restraints on banks, 1970–2000

Event-study evidence of the value of relaxing long-standing regulatory restraints on banks, 1970–2000

Bank moral hazard and the introduction of official deposit insurance in Canada

Event-Study Evidence of the Value of Relaxing Longstanding Regulatory Restraints on Banks, 1970-2000

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