Determinants of Thrift Institution Off-Balance Sheet Activities: An Empirical Investigation

Journal of Financial Management and Analysis, Vol. 19, No. 1, 2006

Posted: 20 Sep 2006

See all articles by M. Kabir Hassan

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

William H. Sackley

University of North Carolina at Wilmington - Cameron School of Business - Department of Economics and Finance

Abstract

This study extends the of-balance sheet (OBS) banking literature to thrift OBS activities by empirically examining the motivation for thrift institutions to engage in various OBS activities, and to shed light on the risk-based capital requirement of thrift OBS activities. This is the first known study that addresses thrift OBS activities. A probit model is employed to test three hypotheses concerning the determinants of thrift OBS activities, namely, the regulatory tax hypothesis, the moral hazard hypothesis, and the market discipline hypothesis. In general, institutions engaging in off-balance sheet activities tend to be larger, better diversified, have higher capitalizations, hold a higher level of required reserves, and make a higher proportion of commercial and industrial loans. This study also found very strong support for market discipline hypothesis, weak support for regulatory tax hypothesis, and no support for moral hazard hypothesis.

Keywords: Thrift institutions, Off-balance sheet, Probit model

JEL Classification: G21, M41, O51, P34

Suggested Citation

Hassan, M. Kabir and Sackley, William H., Determinants of Thrift Institution Off-Balance Sheet Activities: An Empirical Investigation. Journal of Financial Management and Analysis, Vol. 19, No. 1, 2006, Available at SSRN: https://ssrn.com/abstract=895965

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

William H. Sackley (Contact Author)

University of North Carolina at Wilmington - Cameron School of Business - Department of Economics and Finance ( email )

Wilmington, NC 28403
United States

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