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Wealth Effects of Banks' Rights to Market and Originate Annuities

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  • Arnold R. Cowan

    (Iowa State University)

  • Jann C. Howell

    (Iowa State University)

  • Mark L. Power

    (Iowa State University)

Abstract

We examine wealth effects, for banks and insurers, of bank rights to sell and underwrite annuities. The stock-price reactions to four court and regulatory decisions are consistent with expectations of bank gains at insurers' expense. Cross-sectionally, smaller, riskier insurers with higher distribution costs and substantial annuity business sustain larger wealth losses. Larger, riskier bank holding companies with fee- based and consumer business gain most, consistent with the extension of federal safety-net guarantees as a source of gains. Banking stock-price reactions to the Supreme Court's decision are opposite other findings, possibly reflecting unfulfilled expectations of a broader mandate for expanded bank rights.

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File URL: http://128.118.178.162/eps/fin/papers/0203/0203002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0203002.

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Date of creation: 06 Mar 2002
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Handle: RePEc:wpa:wuwpfi:0203002

Note: Type of Document - Acrobat 5.0 PDF; prepared on Windows 2000;
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Web page: http://128.118.178.162

Related research

Keywords: Annuities; VALIC; financial modernization; deregulation; deposit insurance; Blackfeet National Bank; event studies;

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References

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  1. Julie L. Williams & Stuart E. Feldstein & Karen E. Mcsweeney, 1997. "Current Issues Regarding Bank Sales Of Insurance And Annuity Products," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 1(1), pages 65-84, 07.
  2. Karafiath, Imre, 1988. "Using Dummy Variables in the Event Methodology," The Financial Review, Eastern Finance Association, vol. 23(3), pages 351-57, August.
  3. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
  4. Fred Furlong & Simon Kwan, 1999. "Financial modernization and regulation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec31.
  5. John, Kose & John, Teresa A. & Senbet, Lemma W., 1991. "Risk-shifting incentives of depository institutions: A new perspective on federal deposit insurance reform," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 895-915, September.
  6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  7. Fred Furlong & Simon Kwan, 1999. "Financial Modernization and Regulation," Journal of Financial Services Research, Springer, vol. 16(2), pages 95-100, December.
  8. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer.
  9. Marcia Cornett & Hamid Mehran & Hassan Tehranian, 1998. "The Impact of Risk-Based Premiums on FDIC-Insured Institutions," Journal of Financial Services Research, Springer, vol. 13(2), pages 153-169, April.
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Cited by:
  1. Carow, Kenneth A. & Kane, Edward J., 2002. "Event-study evidence of the value of relaxing long-standing regulatory restraints on banks, 1970-2000," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(3), pages 439-463.
  2. Staikouras, Sotiris K., 2009. "An event study analysis of international ventures between banks and insurance firms," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(4), pages 675-691, October.

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