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.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_77086 |
| Contributors | Genin, Veronique Annie., Florida State University |
| Source Sets | Florida State University |
| Language | English |
| Detected Language | English |
| Type | Text |
| Format | 331 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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