On Wealth Effects of Deposit Insurance Premium Revisions on Large Publicly Traded Commercial Banks

Posted: 1 Dec 1999

See all articles by Donald R. Fraser

Donald R. Fraser

Texas A&M University - Department of Finance

Gregory Hebb

Dalhousie University - School of Business Administration

Rita Biswas

University at Albany - SUNY

Abstract

Evidence is provided from changes in deposit insurance premiums in the early 1990s on the validity of the premium absorption hypothesis and thepremium shifting hypothesis. Analysis of abnormal market returns associated with deposit insurance events using a market model event study methodology suggests that reductions in deposit insurance premiums are associated with increases in the market value of banking organizations; conversely, increases in deposit insurance premiums are associated with decreases in market wealth. The largest banks in the sample and banks with low equity capital (and low risk-based capital ratios)appear to be most affected. These results are generally consistent with the premium absorption hypothesis but inconsistent with the premium shifting hypothesis.

JEL Classification: G21, G28

Suggested Citation

Fraser, Donald R. and Hebb, Gregory M. and Biswas, Rita, On Wealth Effects of Deposit Insurance Premium Revisions on Large Publicly Traded Commercial Banks. Available at SSRN: https://ssrn.com/abstract=182193

Donald R. Fraser (Contact Author)

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-845- 2020 (Phone)

Gregory M. Hebb

Dalhousie University - School of Business Administration ( email )

Halifax, Nova Scotia B3H 4R2
Canada

Rita Biswas

University at Albany - SUNY ( email )

1400 Washington Ave.
Albany, NY 12222
United States
518-442-4996 (Phone)
518-442-3045 (Fax)

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