The 1985 Ohio Thrift Crisis,the FSLIC's Solvency,and Rate Contagion for Retail CDs |
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Authors: | ELIZABETH S COOPERMAN WINSON B LEE GLENN A WOLFE |
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Abstract: | This paper uses both an ARIMA transfer-function intervention model and a panel data analysis to examine the effect of the Ohio deposit insurance crisis in 1985 on the pricing of six-month retail certificates of deposit (CDs) for federally-insured Ohio banks and savings and loans. Adjusting for pricing reactions due to changes in market rates, we find a significant, unanticipated rise in CD-rate premiums on the initial event week of the crisis that continued for approximately seven weeks. Consistent with a contingent insurance guarantee hypothesis, rate premiums are found to be risk based. |
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