LOAN DEFAULT RISK, RETURN ON EQUITY AND SIZE EFFECTS AND OWNERSHIP CONTROL - EMPIRICAL EVIDENCE ON SAVINGS AND LOANS ASSOCIATIONS IN THE USA

This study examines how size interacts with the ownership factor in determin- ing which intermediary is more efficient in terms of loan default risk and return on equity when Mutual and Stock Savings and Loan Associations in the USA are compared. Economies of scale in the Savings and Loan Industry in the USA are suggested. Stock associations are found to be more efficient in utiliz- ing those economies and outperform mutuals at each size category except for the smallest associations. These findings have important policy implications for conversions from mutual stock ownership and for chartering new associations.     

A NOTE ON INTEREST RATES AND THE RISK OF BANK AND SAVINGS AND LOAN STOCK

This study examines the relationship between interest rates and the risk of bank and savings and loan stocks. Implied standard deviations from call option prices are used as risk estimates of the financial institutions’ stocks. Results indicate that there is a positive relationship between the risk of depository institution equities and the general level of interest rates. In addition, an upward shift in their risk occurred in late 1982, coinciding with several events that were important to the financial industry (the Penn-Square Bank failure, the Mexican debt crisis, and the passage of the Garn-St. Germain Depository Institutions Act).     

OPERATING PERFORMANCE AND MERGER BENEFITS: THE SAVINGS AND LOAN EXPERIENCE

This research examines the operating performance benefits attained by merging savings institutions. Merging and nonmerging savings and loan associations are compared before and after the merger year on the basis of financial performance. A univariate test of differences and a multivariate test, probit analysis, are used to distinguish between the two groups. Improvements in operating performance are found for the merged savings institutions.     

THE IMPACTS OF FINANCIAL DEREGULATION UPON TRADING EFFICIENCY AND THE LEVELS OF RISK AND RETURN OF JAPANESE BANKS

Japanese banks are very large and were rigidly controlled until financial deregulation began in the late 1970s. This paper measures the impact of deregulation upon the trading efficiency and the levels of risk and return of the largest 27 listed Japanese banks. We found that as the pace of deregulation increased, there were significant increases in trading efficiency as well as in the levels of returns and risks. With deregulation, the Japanese banking system, which contains the largest banks in the world, has become less protected and more vulnerable to the discipline of market movements.