Principal-agent problems in S&L salvage

Article Abstract:

New legislation and traditional FDIC insolvency-resolution procedures transform and intensify the principal-agent problems most responsible for the FSLIC mess. These problems explain counterproductive constraints on the governance and operating policies of the agency responsible for rescuing and salvaging assets in insolvent thrifts: the RTC. The constraints slow insolvency resolution, increases interim financing costs, and undermine RTC recovery of asset value. Operationalizing its task as preserving evanescent and economically misconceived 'franchise values,' the RTC allows insolvents to seek financing on an unconsolidated basis, initiates bidding for one institution at a time, hold back seriously troubled assets, and recruits an overly narrow range of bidders. (Reprinted by permission of the publisher.)

Analysis, Laws, regulations and rules, Savings and loan associations, United States. Resolution Trust Corp., United States. Federal Deposit Insurance Corp., Savings and Loan Associations Bailout Crisis, 1987-, United States. Federal Savings and Loan Insurance Corp.

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Modeling structural and temporal variation in the market's valuation of banking firms

Article Abstract:

Hidden capital exists whenever the accounting measure of a firm's net worth diverges from its economic value. Such unbooked capital has on-balance-sheet and off-balance-sheet sources. This paper develops a model to estimate both forms of hidden capital and to test hypotheses about their determinants. In effect, the analysis expands the two-index model by endogenizing the market and interest-rate sensitivities of any stock and decomposing each sensitivity into on-balance sheet and off-balance sheet elements. For a sample of banks during 1975-1985, the model finds considerable variation in both forms of hidden capital. (Reprinted by permission of the publisher.)

Models, Stocks, Accounting and auditing, Accounting, Financial statements, Capital

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Effectiveness of capital regulation at U.S. commercial banks, 1985 to 1994

Article Abstract:

The capital discipline imposed on the US banking industry by the federal government between 1985 and 1994 did not prevent large banks from shifting their risk onto the governmental safety net. Banks with debt-to-deposit and low capital ratios averted this discipline better than other banks.

United States, Capital Accum by Financial Institns, Evaluation, Capital movements

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