IDEAS home Printed from https://ideas.repec.org/a/spr/jecfin/v23y1999i1p99-111.html
   My bibliography  Save this article

FDICIA and bank failure contagion: Evidence from the two failures of first city bancorporation

Author

Listed:
  • Robert Weigand
  • Donald Fraser
  • Babu Baradwaj

Abstract

We investigate contagion effects from the two failures of First City Bancorporation—the only large regional bank to fail before and after FDICIA. FDICIA imposes changes in the bank failure resolution process that expose uninsured depositors to substantially greater risk. We find that shocks to First City’s weekly returns affect the conditional volatility of all but the most financially sound banks in the 1985–1987 period. This risk spillover effect is not evident in the period leading up to First City’s 1992 failure, however, which suggests that the regulatory changes embodied in FDICIA have not contributed to a more risky banking system. Copyright Springer 1999

Suggested Citation

  • Robert Weigand & Donald Fraser & Babu Baradwaj, 1999. "FDICIA and bank failure contagion: Evidence from the two failures of first city bancorporation," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(1), pages 99-111, March.
    • Handle: RePEc:spr:jecfin:v:23:y:1999:i:1:p:99-111
    DOI: 10.1007/BF02752691
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/BF02752691
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/BF02752691?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Park, Sangkyun, 1991. "Bank failure contagion in historical perspective," Journal of Monetary Economics, Elsevier, vol. 28(2), pages 271-286, October.
    2. O'Hara, Maureen & Shaw, Wayne, 1990. "Deposit Insurance and Wealth Effects: The Value of Being "Too Big to Fail."," Journal of Finance, American Finance Association, vol. 45(5), pages 1587-1600, December.
    3. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    4. Smirlock, Michael & Kaufold, Howard, 1987. "Bank Foreign Lending, Mandatory Disclosure Rules, and the Reaction of Bank Stock Prices to the Mexican Debt Crisis," The Journal of Business, University of Chicago Press, vol. 60(3), pages 347-364, July.
    5. Swary, Itzhak, 1986. "Stock Market Reaction to Regulatory Action in the Continental Illinois Crisis," The Journal of Business, University of Chicago Press, vol. 59(3), pages 451-473, July.
    6. Sangkyun Park, 1991. "Bank failure contagion in historical perspective," Research Paper 9103, Federal Reserve Bank of New York.
    7. Aharony, Joseph & Swary, Itzhak, 1983. "Contagion Effects of Bank Failures: Evidence from Capital Markets," The Journal of Business, University of Chicago Press, vol. 56(3), pages 305-322, July.
    8. R. J. Cebula, 1997. "An exploratory empirical analysis of the impact of the Federal Deposit Insurance Corporation Improvement Act of 1991 on bank failures in the United States," Applied Financial Economics, Taylor & Francis Journals, vol. 7(6), pages 695-701.
    9. Ross, Stephen A, 1989. " Information and Volatility: The No-Arbitrage Martingale Approach to Timing and Resolution Irrelevancy," Journal of Finance, American Finance Association, vol. 44(1), pages 1-17, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Elyasiani, Elyas & Mansur, Iqbal & Pagano, Michael S., 2007. "Convergence and risk-return linkages across financial service firms," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1167-1190, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Acharya, Viral & Yorulmazer, Tanju, 2003. "Information Contagion and Inter-Bank Correlation in a Theory of Systemic Risk," CEPR Discussion Papers 3743, C.E.P.R. Discussion Papers.
    2. Jayanti, S. V. & Whyte, Ann Marie & Quang Do, A., 1996. "Bank failures and contagion effects: Evidence from Britain and Canada," Journal of Economics and Business, Elsevier, vol. 48(2), pages 103-116, May.
    3. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    4. Schumacher, Liliana, 2000. "Bank runs and currency run in a system without a safety net: Argentina and the 'tequila' shock," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 257-277, August.
    5. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 35, European Central Bank.
    6. Aharony, Joseph & Swary, Itzhak, 1996. "Additional evidence on the information-based contagion effects of bank failures," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 57-69, January.
    7. Angelos Kanas, 2005. "Pure contagion effects in international banking: The case of BCCIÂ’s failure," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 101-123, May.
    8. Brailsford, T.J. & Lin, Shu Ling & Penm, Jack H.W., 2006. "Conditional risk, return and contagion in the banking sector in asia," Research in International Business and Finance, Elsevier, vol. 20(3), pages 322-339, September.
    9. Nobuyoshi Yamori, 1999. "Stock Market Reaction to the Bank Liquidation in Japan: A Case for the Informational Effect Hypothesis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(1), pages 57-68, February.
    10. John M. Halstead & Shantaram Hegde & Linda Schmid Klein, 2004. "Orange County Bankruptcy: Financial Contagion in the Municipal Bond and Bank Equity Markets," The Financial Review, Eastern Finance Association, vol. 39(2), pages 293-315, May.
    11. Gerald D. Gay & Stephen G. Timme & Kenneth Yung, 1991. "Bank Failure And Contagion Effects: Evidence From Hong Kong," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(2), pages 153-165, June.
    12. Parnes, Dror, 2021. "Modeling the contagion of bank runs with a Markov model," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 174-187.
    13. Paul Goldsmith-Pinkham & Tanju Yorulmazer, 2010. "Liquidity, Bank Runs, and Bailouts: Spillover Effects During the Northern Rock Episode," Journal of Financial Services Research, Springer;Western Finance Association, vol. 37(2), pages 83-98, June.
    14. Larry D. Wall, 2010. "Too-big-to-fail after FDICIA," Economic Review, Federal Reserve Bank of Atlanta, vol. 95(1).
    15. Kornert, Jan, 2003. "The Barings crises of 1890 and 1995: causes, courses, consequences and the danger of domino effects," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(3), pages 187-209, July.
    16. Samartin, Margarita, 2003. "Should bank runs be prevented?," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 977-1000, May.
    17. Honohan, Patrick, 1999. "A model of bank contagion through lending," International Review of Economics & Finance, Elsevier, vol. 8(2), pages 147-163, June.
    18. Schüler, Martin & Schröder, Michael, 2003. "Systemic Risk in European Banking: Evidence from Bivariate GARCH Models," ZEW Discussion Papers 03-11, ZEW - Leibniz Centre for European Economic Research.
    19. Kaen, Fred R. & Michalsen, Dag, 1997. "The effects of the Norwegian banking crisis on Norwegian equities," Journal of Multinational Financial Management, Elsevier, vol. 7(2), pages 83-111, June.
    20. Philip Molyneux & Tim Mi Zhou, 2022. "Banking market reaction to auctions of failed banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 518-534, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecfin:v:23:y:1999:i:1:p:99-111. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.