The Effect of TBTF Deregulation on Bank Cost of Funds
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.
|Date of creation:|
|Contact details of provider:|| Postal: 3301 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104.6367|
Web page: http://fic.wharton.upenn.edu/fic/
More information through EDIRC
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.:
- Larry D. Wall, 1993.
"Too-big-to-fail after FDICIA,"
Federal Reserve Bank of Atlanta, issue Jan, pages 1-14.
- 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 121-158, April.
- 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.
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 references are entirely missing, you can add them using this form.