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Assessing Damages: The 1983 Israeli Bank Shares Crisis

Posted: 14 Feb 2001  

Asher Blass

Bank of Israel - Research Department

Richard S. Grossman

Wesleyan University - Economics Department; Institute for Quantitative Social Sciences - Harvard University

Abstract

In 1983, Israeli bank shares collapsed following several years during which the banks had actively intervened to promote share prices and thereby contributed to a 300% rise in real terms. During the crisis the government assumed control of the banks, which they did not begin to sell back to the public until 1993. We compare 1993 bank share prices after the banks were partially relisted on the Stock Exchange with 1983 precrisis values. The 1993 time-adjusted market values were $10 billion lower than in 1983, a decline borne by precrisis shareholders ($4 billion) and by taxpayers ($6 billion). Of this latter amount, two-thirds represents a transfer from the government to shareholders, while approximately one-third represents an efficiency loss - and hence a direct cost - resulting from government ownership of the banks for 10 years following the crisis. The results highlight the risk inherent in a banking system that is both concentrated and universal and illustrates the costs associated with sustained government ownership.

Suggested Citation

Blass, Asher and Grossman, Richard S., Assessing Damages: The 1983 Israeli Bank Shares Crisis. Contemporary Economic Policy, Vol. 19, Issue 1, January 2001. Available at SSRN: https://ssrn.com/abstract=251761

Asher Blass

Bank of Israel - Research Department ( email )

PO Box 780
Jerusalem 91007
Israel
+97 2 6552 600 (Phone)
+97 22 6552 660 (Fax)

Richard S. Grossman (Contact Author)

Wesleyan University - Economics Department ( email )

Middletown, CT 06459
United States
(860) 685-2356 (Phone)
(860) 685-2781 (Fax)

HOME PAGE: http://rgrossman.web.wesleyan.edu

Institute for Quantitative Social Sciences - Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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