The Impact of Risk-Based Premiums on FDIC-Insured Institutions |
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Authors: | Marcia Millon Cornett Hamid Mehran Hassan Tehranian |
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Affiliation: | (1) College of Business and Administration, Southern Illinois University, Carbondale, Illinois;(2) Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois;(3) Wallace E. Carroll School of Management, Boston College, Chestnut Hill, Massachusetts |
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Abstract: | This paper examines the effect of a series of announcements leading to the approval of risk-based deposit insurance premiums on returns to stockholders of commercial banks. Utilizing risk-weighted capital ratios and measures of overall risk, we group banks according to one of the nine-tier insurance categories subsequently defined by the FDIC. During the period in which the new insurance system was considered and approved, we found that stockholders of well-capitalized, healthy banks experienced wealth changes significantly different from those experienced by less than well-capitalized, less than healthy banks. Although many argued the premium range in the initial insurance schedule was insufficient, the results show that this initial risk-basing marked an important change in the relative burdens imposed by FDIC insurance. |
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