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The Impact of Federal Deposit Insurance on Savings and Loan Failures

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  • Cebula, Richard

Abstract

This study empirically investigates the hypothesis that a higher real ceiling on federal deposit insurance leads to an increased failure rate for savings and loans (S&Ls). After providing a history of federal deposit insurance, a formal model is developed. The empirical analysis thereof examines both the percentage of federally insured S&Ls that failed and the number thereof that failed. The results were consistent for both sets of estimates. Among other things, the time-series estimates reveal that the S&L failure rate over the 1965-1989 study period were a decreasing function of the real price of imported crude oil, the mortgage portfolio yield, and the average capital-asset ratio. In addition, the S&L failure rate was found to be an increasing function of the cost of deposits, the volatility of the mortgage portfolio yield, recession, and, finally, the real ceiling per account on federal deposit insurance.

Suggested Citation

  • Cebula, Richard, 1992. "The Impact of Federal Deposit Insurance on Savings and Loan Failures," MPRA Paper 51540, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:51540
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    References listed on IDEAS

    as
    1. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, December.
    2. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    4. James R. Barth, 1991. "The Great Savings and Loan Debacle," Books, American Enterprise Institute, number 918256, September.
    5. Jaffee, Dwight M, 1989. "Symposium on Federal Deposit Insurance for S&L Institutions," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 3-9, Fall.
    6. Sider, Hal, 1985. "Unemployment Duration and Incidence: 1968-82," American Economic Review, American Economic Association, vol. 75(3), pages 461-472, June.
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    Citations

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    Cited by:

    1. Richard J. Cebula & Willie J. Belton, 1996. "An Empirical Analysis Of Determinants Of Geographic Differentials In The Bank Closing Rate In The United States, 1989-1994, Using The Heteroskedastic-Tobit Model," The Review of Regional Studies, Southern Regional Science Association, vol. 26(3), pages 341-350, Winter.
    2. Ira Saltz, 1997. "Federal deposit insurance coverage and bank failures: A cointegration analysis with semi-annual data, 1965–91," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 21(3), pages 3-9, September.
    3. Richard J. Cebula, 1996. "Geographic Differentials In The Rate Of Return On Savings And Loan Assets," The Review of Regional Studies, Southern Regional Science Association, vol. 26(1), pages 41-53, Summer.
    4. Cebula, Richard & McGrath, Richard & Perry, William, 2002. "Empirical Analysis of Determinants of Geographic Differentials in the Bank Failure Rate in the U.S.: A Heteroskedastic-Tobit Estimation," MPRA Paper 60169, University Library of Munich, Germany.
    5. Thomas L. Hogan & Neil R. Meredith, 2016. "Risk and risk-based capital of U.S. bank holding companies," Journal of Regulatory Economics, Springer, vol. 49(1), pages 86-112, February.
    6. Cebula, Richard & Barth, James & Belton, Willie, 1994. "A Tobit Analysis of Determinants of Geographic Differentials in the Commercial Bank Closing Rate in the United States," MPRA Paper 51513, University Library of Munich, Germany.
    7. Jo-Hui Chen & Chih-Sean Chen, 2011. "The effects of international off-site surveillance on bank rating changes," Quality & Quantity: International Journal of Methodology, Springer, vol. 45(6), pages 1313-1329, October.
    8. Richard Cebula, 1999. "New evidence on determinants of bank failures in the US," Applied Economics Letters, Taylor & Francis Journals, vol. 6(1), pages 45-47.
    9. Ira Saltz, 1997. "FDIC Coverage on bank failures: Cointegration analysis using annual data, 1942–91," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 3(1), pages 71-80, February.

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    More about this item

    Keywords

    financial institution failures; federal deposit insurance; mortgage interest rates; mortgage rate volatility; cost of deposits;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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