Federal Home Loan Bank Advances and Bank and Thrift Holding Company Risk: Evidence from the Stock Market

42 Pages Posted: 4 Jun 2020

See all articles by Scott Deacle

Scott Deacle

Ursinus College

Elyas Elyasiani

Temple University - Department of Finance

Date Written: Winter 2019

Abstract

Using bivariate GARCH models of stock portfolio returns and risk, we find that bank and thrift holding companies that relied the most on Federal Home Loan Bank (FHLB) advances exhibited less total risk and market risk than those that relied on them the least between 2001 and 2012. When we control for differences in holding company size, stock trading volume, residential mortgage lending, and holding company type (bank vs. thrift), the most FHLB‐reliant holding companies sustain the aforesaid risk advantages except during the crisis of 2007–2009, when they exhibit greater idiosyncratic risk. The latter finding suggests that investors perceived the high reliance of the borrowing institutions on advances as a sign of distress. Portfolios that consist of only bank holding companies show qualitatively similar results.

Suggested Citation

Deacle, Scott and Elyasiani, Elyas, Federal Home Loan Bank Advances and Bank and Thrift Holding Company Risk: Evidence from the Stock Market (Winter 2019). Real Estate Economics, Vol. 47, Issue 4, pp. 1013-1054, 2019, Available at SSRN: https://ssrn.com/abstract=3617151 or http://dx.doi.org/10.1111/1540-6229.12174

Scott Deacle (Contact Author)

Ursinus College ( email )

Collegeville, PA 19426-2562
United States

Elyas Elyasiani

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

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