Winson B. Lee

Banks' changing incentives and opportunities for risk taking

Abstract This paper investigates the deterioration of the banking industrys risk-control system during the 1980s and the time-varying relation between a banks ex-ante risk-taking incentives and its ex-post risk-taking behavior over the period 1977–1994. We document that banks with high charter value imposed self-discipline on risk-taking behavior at all times. In contrast, banks with low charter value assumed significantly more risk beginning around 1983, and this behavior continued into the early 1990s. These findings have several important policy implications.

State passage of interstate banking legislation: An analysis of firm, legislative, and economic characteristics

Abstract Forty-nine states and the District of Columbia enacted legislation reducing interstate banking restrictions between July 1982 and April 1993. For these 50 banking bills, deregulation increased the average price of bank stocks. Returns vary cross-sectionally by firm characteristics, regulatory features, and economic conditions. Returns are positively related to the characteristics of acquisition targets. Furthermore, returns are positively related to legislative features that increase the bargaining power of potential targets and economic conditions that are likely to encourage bank acquisition. These findings are consistent with the relaxation of geographic restrictions increasing activity in the corporate control market.

Geographical Integration and the Retail CD-Pricing Decisions of Large Depository Institutions

This paper focuses on the six-month retail certificate of deposit (CD) rates of large depository institutions in six major cities during 1983-1988 to test the integration of their retail CD markets. Using Grangers (1986) concept of co-integration, we find a long-run equilibrium relationship between the city CD-rate offers and the six-month Treasury bill rate. After filtering out this relationship, a vector autoregressive model is employed with Granger (1969) causality tests to determine the significance of intercity rate dependencies. Our results indicate an increasing number of intercity relations over time, consistent with an emerging integrated market. Since our sample represents a subset of bank CDs for the largest firms operating in six of the nations largest cities, the results should not be generalized to other smaller bank markets, CD maturities, or bank products. The periods examined are also close together in time, which could affect the robustness of the results.

Commercial bank and thrift interdependence and local market competition for retail certificates of deposit

Because of prior data limitations, the interdependence between banks and thrifts in their rate-setting activities have never been empirically examined. These relationships are important in order to understand the structure of deposit markets and to evaluate the competitive effects of deregulation. This study applies vector autoregressive modeling techniques to analyze six-month retail CD rate data for large banks and thrifts in six major cities during 1983 through 1985. A structure of rate-setting behavior is observed that is consistent with oligopolistic markets where banks, as stronger institutions, dominate the price-setting decisions of thrifts.