Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Effect of TBTF Deregulation on Bank Cost of Funds

Contents:

Author Info

  • Lazarus Angbazo
  • Anthony Saunders
Registered author(s):

    Abstract

    This paper tests the hypothesis that changes to the "too-big-to-fail" (TBTF) doctrine under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) increased the risk of deposit loss and the cost of funds for large banks. Furthermore, the paper analyzes the implications of the National Depositor Preference Law of 1993 on the priority, risk, and cost of non-deposit funds in banking. One consistent finding is that the systematic risk coefficient for large banks declined sharply after the passage of FDICIA. In addition, the average cost of deposits and non-deposit funds were lower in the later period, consistent with a generally lower level of interest rates as well as a reduction in the required risk premium. The data did not show a corresponding decline in the systematic risk or cost of funds for small banks. Finally we examined the stock market reaction of the sample banks to the events leading up to FDICIA's passage. In general, the distribution of wealth effects is consistent with the hypothesis that the impact of reduced deposit coverage for failing banks was confined to the large bank segment. This paper was presented at the Financial Institutions Center's conference on Performance of Financial Institutions, May 8-10, 1997.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://fic.wharton.upenn.edu/fic/papers/97/saunders.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 97-25.

    as in new window
    Length:
    Date of creation:
    Date of revision:
    Handle: RePEc:wop:pennin:97-25

    Contact details of provider:
    Postal: 3301 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104.6367
    Phone: 215.898.1279
    Fax: 215.573.8757
    Email:
    Web page: http://fic.wharton.upenn.edu/fic/
    More information through EDIRC

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
    2. Schwert, G William, 1981. "Using Financial Data to Measure Effects of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 121-58, April.
    3. Larry D. Wall, 1993. "Too-big-to-fail after FDICIA," Economic Review, Federal Reserve Bank of Atlanta, issue Jan, pages 1-14.
    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 in new window

    Cited by:
    1. Elijah Brewer, III & Julapa Jagtiani, 2007. "How much would banks be willing to pay to become "too-big-to-fail" and to capture other benefits?," Research Working Paper RWP 07-05, Federal Reserve Bank of Kansas City.
    2. Mark Flannery, 2001. "The Faces of “Market Discipline”," Journal of Financial Services Research, Springer, vol. 20(2), pages 107-119, October.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wop:pennin:97-25. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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