This dissertation investigates the early closure reform proposal through the derivation of bank-specific market-based closure parameters. The study covers 32 quarters from the years 1984 through 1991. The first essay analyzes the relationship between early closure, the flat-rate deposit insurance premium, and the FDIC direct assistance. Optimal bank-specific closure thresholds, expressed as an assets-to-deposits ratio, which make the deposit insurance premium fair, are generated using the Ronn and Verma (1986) option pricing methodology. The results support the hypotheses that troubled banks have a closure threshold less or equal to one but closer to one than for safe banks and that higher capital levels provide additional cushion, inciting the insuring agency to revise the bank's closure threshold downward. In a second essay, bank-specific closure-condition parameters, which represent the value of the opportunity to become solvent and to preserve the franchise value, are derived using the framework developed by Cordell and King (1992). For most banks, the value of forbearance is near zero. The findings also suggest that the model identifies to a certain extent the banks that are financially unsound. A comparison of the closure-condition parameters determined by the franchise value with the closure thresholds that make the deposit insurance premium fair reveals that for most banks, the insuring agency has enough funds to provide the banks with the opportunity to become solvent and preserve the franchise value. The third essay explores the relationship between the bank-specific closure-condition parameters determined in the second essay and business cycles. A leading economic indicator and state personal income are used separately to capture economic activity. The sample consists of 77 banks that are classified into five regions. A seemingly unrelated / regressions framework is used for each region. The results indicate that banks' conditions are rarely influenced by national business cycles. The findings associated with state personal income provide some evidence to support the contention that banks' conditions are influenced by regional economic activity. / Source: Dissertation Abstracts International, Volume: 55-01, Section: A, page: 0112. / Major Professors: William A. Christiansen; David R. Peterson. / Thesis (Ph.D.)--The Florida State University, 1994.

Regulation of the banking industry has been a prominent part of our financial structure for most of this century. The evolutionary cycle of regulation has gone through phases with emphasis vacillating between the extremes of safety and efficiency. As the riskiness of the banking industry heightens, the debate over protectionism versus market discipline intensifies. / The purpose of this dissertation is to investigate the social costs of bank failure through an examination of both the financial and real economic sectors. An empirical examination into the presence of a contagion effect resulting from a large bank failure is conducted by analyzing how banks of various size and geographic regions were affected by the failure of First Republic Bank in Texas. Bank stock price reactions are examined, taking into account nonsynchronous trading and cross-sectional dependence to detect information based industry effects versus panic based contagion effects resulting from this failure. Strong support for the presence of industry effects is observed. Little reaction occurred by banks outside the Texas and Southwest regions. / The effects of bank failure on real sectors of the economy are investigated by examining the impact of a contracted credit intermediation process upon levels of production. The regional economy of Texas is modelled to determine if the disruption in credit services caused by bank instability has adversely affected Gross State Product. Support for the hypothesis that costs of credit intermediation impose real costs upon the Texas economy is observed. / Source: Dissertation Abstracts International, Volume: 50-10, Section: A, page: 3288. / Major Professor: William A. Christiansen. / Thesis (Ph.D.)--The Florida State University, 1989.

The behavior of the cost function for a sample of commercial banks over the years 1979-1986 was investigated, using a multiproduct model in a simultaneous equations framework. For the years prior to 1982, little evidence was found to suggest that economies of scale exist beyond very small levels of output. In contrast to the earlier years and most of the previous literature, statistically significant scale economies were found for banks in branching states in the years 1983-86, and in unit banking states for the years 1982, 1983, and 1986. Overall economies of scope in the production of loans, investments, and trust accounts were found in all years, and they were larger for banks in branch banking states than for banks in unit banking states. These results indicate that the effect of recent regulatory and technological changes may be to give larger, more diversified banks a cost advantage over that which may have existed in previous years. / Source: Dissertation Abstracts International, Volume: 50-10, Section: A, page: 3314. / Major Professor: Frederick W. Bell. / Thesis (Ph.D.)--The Florida State University, 1989.

The purpose of this study is to extend the body of Agency Theory Literature to the class of relatively small firms that use the revolving Asset-Based Loan (ABL) as their major source of debt financing. Specifically, the revolving ABL structure is examined and implications for both the resolution of debt-related agency problems and the determinants of capital structure are explored. / While much of the existing financial research focuses on the activities of large, publicly owned corporations, smaller privately owned corporations play an important role in the United States economy. These firms often use revolving ABL arrangements as sources of debt financing rather than the issuance of debt securities in the organized financial markets. Since the structure of the revolving ABL affects both the resolution of debt-related agency problems and the capital structure in these private firms, an extensive discussion of the ABL structure is presented. / Once the structure of the ABL is known, the implications for debt-related agency problems are discussed. Debt-related agency problems that have been identified by other authors as existing in publicly traded firms are shown to exist in private firms as well. Since the security pricing actions of the financial markets are not available to private firms for reducing these agency problems, the ABL contract and the resulting loan structure act to reduce these problems. / This dissertation culminates in an empirical study of the determinants of capital structure in private firms using revolving ABL financing. A series of regressions that relate debt ratios to specific firm characteristics are performed. The results reveal that the asset structure of the firms examined is a major determinant of the extent of debt financing used. These findings conflict with many of the results reported by similar past studies that use data from publicly owned firms that issue formal debt securities. / Source: Dissertation Abstracts International, Volume: 50-12, Section: A, page: 4009. / Major Professor: Jerome S. Osteryoung. / Thesis (Ph.D.)--The Florida State University, 1989.

Expansion of bank powers is currently an important and highly debated issue. Bankers, financial economists, regulators, and politicians argue that, for banks to survive and compete successfully today and in the future, banks must have greater powers in the areas of insurance, securities, and real estate. / In order to effectively understand the issues of expanding bank powers, the current regulations should be examined. Bank activity regulation is a dynamic and complex structure resulting from legislative, judicial, and administrative agency actions on both the federal and state level. The current status and direction of this area of bank regulation indicates that increased power in areas of insurance, investment banking, and real estate are in the future of banking. / A simulation using earnings determines the potential of expanded bank powers. The data used in this simulation is superior to other studies because of its greater range of dates, inclusion of failed firms, and finer industry classification. The results are favorable to greater expansion in the areas of insurance, less favorable for expansion in securities, and not favorable at all for greater real estate expansion. In all cases, restricting the level of investment in the nonbanking activity is important in controlling risk. When the simulation is repeated using cash flow data the Insurance Agent/Broker (SIC 6411) and Investment Advice (SIC 6282) industries are the areas with the most promise for bank power expansion. Furthermore, additional real estate powers are not supported by this study because of real estate's consistently poor performance. / Source: Dissertation Abstracts International, Volume: 52-09, Section: A, page: 3380. / Major Professor: William A. Christiansen. / Thesis (Ph.D.)--The Florida State University, 1991.

In the first chapter, we examine the relation between efficiency and competition in a dynamic framework. For this purpose, we measure efficiencies and conduct of the U.S. airlines in two city-pairs. We model the conduct parameter as an unobservable state variable which is an AR(1) process and estimate it by the square-root Kalman filter technique. Our results accords with Hick's (1935) 'quiet life hypothesis.' In the second chapter, we propose using the Kalman filter estimator (KFE) to estimate the technical efficiency. We assume that the effects term is an AR(1) process or a random walk. We apply the KFE to estimate the average efficiencies of the U.S. airlines during the period 1971-1986. We found evidence of 'quiet life hypothesis.' In the third chapter, we estimate the time-varying efficiencies of the U.S. banks during 1984-1995 with four different efficiency estimators. Using these series of efficiency estimates, we make a multivariate Kalman filter analysis to examine the efficiency trend in the G.S. banks during this period. We observed that the regulations and innovations had a positive effect on the efficiency of G.S. banks as expected. However, this positive effect decayed through time. The fourth chapter generalizes the well-known Battese-Coelli (1992) (BC) estimator to allow endogenous regressors. The regressors are still assumed to be independent of the effects though they are correlated with the irregular term. The simulations show the superiority of our method to the BC estimator. Efficiency is a residual that is caused by managerial mistakes. In the final chapter, we propose some strategies to minimize such mistakes in the Stackelberg competition world with price discrimination. We suggest that the leader should use its preemptive advantage to attract the highest value customers and that the follower should price discriminate over the residual demand.

Chapter one presents evidence that a strong lending relationship exists between borrower firms and their commercial bank lenders that is altered by bank mergers. Negative abnormal stock returns experienced by firms borrowing from banks are investigated to ascertain the explanatory power of the relationship lending hypothesis. Negative returns are found to be attributable to the change in the lending relationship brought about by bank mergers. In addition, we find evidence of a delayed capital-market response by borrower firm stockholders to bank merger events. We conclude that borrower firms incur significant economic costs in response to changes in their banking relationships resulting from bank mergers. Chapter two tests the hypothesis of managerialism, defined as top executives seeking to maximize their own wealth in terms of compensation and perquisites rather than maximization of the banking firm's value. This chapter presents evidence contrary to the managerialism hypothesis. It appears the 1991 FDICIA law has effectively mitigated managerialism in the ranks of top bank executives. However, the evidence also suggests that executives in upper-middle management of merged banks have not been constrained by FDICIA. These upper middle-level executives consistently receive higher compensation than their non-merged peers.

<p>Bank lending processes and lending relationships involve two aspects, the provision of liquidity via lines of credit and the production of information via monitoring. To access the existing credit line, a borrower must be in compliance with financial covenants. When violations occur, access becomes conditional upon the bank&rsquo;s willingness to accommodate the customer. The bank values its reputation as an accommodating lender and views a decision regarding credit line access restrictions as a trade-off between reputational and financial capital. Since imposing restrictions on a more loyal borrower causes greater reputational damage, a bank&rsquo;s &ldquo;willingness&rdquo; to accommodate increases in the strength of the relationship with its borrower. This is the first channel through which relationships have effect. To the extent that lending also involves monitoring, relationships allow a bank to build an exploitable information advantage. This is the second channel. Most credit lines are monitored, making it difficult to isolate the effects of these two channels. I identify commercial paper backup lines of credit as loans that provide liquidity, but do not involve information production and use them to construct two measures of relationship strength that capture the extent of bank&rsquo;s willingness to provide liquidity (<i>T-intensity </i>) and the bank&rsquo;s information advantage (<i>I-intensity </i>). To make sharper inferences concerning the effect of willingness, I control for a bank&rsquo;s reliance on core deposits as a measure of &ldquo;ability&rdquo; to provide liquidity. I find that loan spreads decrease in <i>T-intensity </i> for firms without public equity. Thus, for such firms, credit lines have liquidity insurance value and it increases with relationship strength. I also find that loan spreads increase in <i>I-intensity</i> for all firms, suggesting that banks are successful at exploiting their information advantage (i.e. &ldquo;holding up&rdquo; borrowers). My findings imply that for relatively opaque borrowers, relationships have value even in the absence of private information production. </p>

<p> Research has shown the recent worldwide economic crises that began in 2007 was partially initiated from lending practices widely utilized in the subprime mortgage industry. The purpose of this study was to gain a greater understanding of the loan officers' perspective on how subprime lending practices contributed to increased foreclosures, the devaluation of housing prices, and the impact of the recent governmental regulations on mortgage lending. Qualitative phenomenology was utilized in this study to explore lived-experiences and meaning loan officers have giving to the rise and fall of the subprime mortgage phenomenon. The participants in this study were contacted via e-mail through data obtain from the National Mortgage Licensing System (NMLS) website. Twenty-two in-person open-ended interviews were conducted with actively licensed loan officers who had been in the mortgage industry for a minimum of 10 years. The results of this phenomenological study inquiry identified several variables that appear to shape loan officers' attitudes and beliefs on the future of the mortgage industry. Eight main influential themes were identified by the participants which included: (1) The Dodd-Frank Act, (2) decreased income, (3) increased qualification standards, (4) decreased loan programs, (5) increased confusion and consumer frustration, (6) increased paperwork, (7) decreased competition, and (8) fear of future restrictive legislation. The findings of this study demonstrate the significance and long-term impact of subprime lending practices on the future of the mortgage industry.</p>

Interactions between the banking sector and an open capital account are investigated as rationalizations for the empirical regularities that characterize disinflation programs anchored by fixing the exchange rate. Financial intermediation and bank money creation are formalized within a dynamic general equilibrium model with multiple monetary aggregates and a financial system characterized by imperfections such as incomplete markets and an externality in the bank lending process. Financial markets are incomplete in the sense that bank loans are the sole source of external finance for nonfinancial firms, and bank deposits are the only form of household savings. The bank lending externality arises because individual banks do not internalize the effect of their lending decisions on the quality of information about potential borrowers received by other banks, and therefore extend more credit than they otherwise would. Simulation of the model economy's equilibrium dynamics shows that an initial increase in the supply of loanable funds resulting from remonetization of the economy in the wake of disinflation can translate into a further rapid expansion of bank credit financed by short-term capital inflows. A credit-driven boom results, accompanied by a currency overvaluation and current account deficits. Together, these generate systemic financial fragilities and make the economy vulnerable to a small shock that can trigger banking and balance-of-payment crises. The model is thus capable of replicating the empirical regularities observed in exchange-rate-based stabilization programs without relying on imperfect credibility or nominal rigidities. Accounting for the role of the banking sector can help to explain why even well-designed exchange-rate-based stabilization programs may set in motion a dynamic process that can lead to a financial crisis and the program's collapse. The policy implication for developing countries is that the authorities should pay attention not only to the design of monetary and exchange rate policies but also to the framework of monetary and financial institutions. The results of the study suggest that diversifying the source of investment finance away from banks and reducing externalities associated with bank lending may be essential preconditions for implementing successful stabilization programs.