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The Determinants of Efficiency and Solvency in Savings and Loans

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  • Benjamin E. Hermalin and Nancy E. Wallace.

Abstract

We study the efficiency and solvency of savings and loans institutions (thrifts). Thrifts that were inefficient (according to a nonparametric measure) were 4 1/2 times more likely than efficient thrifts to fail in the future. We also find that absent controls for lines of business pursued, stock institutions were both less efficient and more likely to fail than mutuals. With controls, these results are reversed. A consistent explanation is that stock institutions are better at resolving the standard agency conflict between owners and managers, but worse at resolving the "asset-substitution" conflict between shareholders and debtholders (depositors). Last, we find that some lines of business deregulated by the Garn-St. Germain Act adversely affected efficiency and solvency.

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Bibliographic Info

Paper provided by University of California at Berkeley in its series Economics Working Papers with number 92-195.

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Date of creation: 01 May 1992
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Handle: RePEc:ucb:calbwp:92-195

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Postal: University of California at Berkeley, Berkeley, CA USA
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Web page: http://www.haas.berkeley.edu/groups/iber/wps/econwp.html
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Cited by:
  1. Mohamed Ariff & Luc Can, 2009. "IMF Bank-Restructuring Efficiency Outcomes: Evidence from East Asia," CARF F-Series CARF-F-148, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  2. Paula A. Tkac, 2004. "Mutual funds: temporary problem or permanent morass?," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 1-21.
  3. J. David Cummins & Mary A. Weiss, 1998. "Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency Methods," Center for Financial Institutions Working Papers 98-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
  4. Benjamin Hermalin & Andrew K. Rose & Peter M. Garber & Andrew Crockett & David W. Mullins, Jr, 1999. "Risks to Lenders and Borrowers in International Capital Markets," NBER Chapters, in: International Capital Flows, pages 363-420 National Bureau of Economic Research, Inc.
  5. Goodhue, Rachael E. & Rausser, Gordon C. & Simon, Leo K., 1998. "Understanding Production Contracts: Testing An Agency Theory Model," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20946, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Rebel A. Cole & Hamid Mehran, 1996. "The effect of changes in ownership structure on performance: evidence from the thrift industry," Finance and Economics Discussion Series 96-6, Board of Governors of the Federal Reserve System (U.S.).
  7. Zuzana Iršová & Tomáš Havránek, 2010. "Measuring Bank Efficiency: A Meta-Regression Analysis," Prague Economic Papers, University of Economics, Prague, vol. 2010(4), pages 307-328.
  8. Patricia Born & William M. Gentry & W. Kip Viscusi & Richard J. Zeckhauser, 1995. "Organizational Form and Insurance Company Performance: Stocks versus Mutuals," NBER Working Papers 5246, National Bureau of Economic Research, Inc.

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