THE EFFECT OF THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 ON BANK STOCKS

Abstract

Abstract In this study we use a multivariate regression model to investigate the effect of the passage of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 on returns to the shareholders of bank‐holding companies. The empirical results suggest that the shareholders of well‐capitalized banks benefited from the enactment of the FDICIA, while those of undercapitalized banks experienced significant losses during the announcement period. However, the shareholders of adequately capitalized banks did not gain or lose significantly from the enactment of the FDICIA. The FDICIA also affected stock returns of large and small bank‐holding companies similarly.

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