| Abstract: | This paper examines the savings and loan (S&L) equity market reaction to the 1985 Ohio S&L Crisis. In contrast to the expectation of negative abnormal returns associated with contagion, the authors find, during the crisis period, significant positive abnormal returns that are larger for a portfolio of less solvent S&Ls, and a significant decline in systematic risk. The results are consistent with an insurance subsidy hypothesis whereby news of the FSLIC's inadequacy in conjunction with the crisis signaled greater future reluctance by regulators to close large federally-insured S&Ls. |
