Wealth Effects of Banks' Rights to Market and Originate Annuities

Abstract:     
We examine wealth effects, for banks and insurers, of bank rights to sell and underwrite annuities. The stock-price reactions to four court and regulatory decisions are consistent with expectations of bank gains at insurers' expense. Cross-sectionally, smaller, riskier insurers with higher distribution costs and substantial annuity business sustain larger wealth losses. Larger, riskier bank holding companies with fee-based and consumer business gain most, consistent with the extension of federal safety-net guarantees as a source of gains. Banking stock-price reactions to the Supreme Court's decision are opposite other findings, possibly reflecting unfulfilled expectations of a broader mandate for expanded bank rights.

Keywords: Annuities, VALIC, financial modernization, deregulation, deposit insurance, Blackfeet National Bank, event studies

JEL Classifications: G21, G22, G28, G14, L51

Working Paper Series