Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60613
Authors: 
Ashcraft, Adam B.
Year of Publication: 
2004
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 189
Abstract: 
I present evidence that the cross-guarantee authority granted to the FDIC by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 has unexpectedly strengthened the Federal Reserve's source-of-strength doctrine. In particular, I find that a bank affiliated with a multi-bank holding company is significantly safer than either a stand-alone bank or a bank affiliated with a one-bank holding company. Not only does affiliation reduce the probability of future financial distress, but distressed affiliated banks are more likely to receive capital injections and recover more quickly than other banks. Moreover, the effects of affiliation are strengthened for an expanding bank holding company. However, the effects of affiliation are weakened when the parent has less than full ownership of the subsidiary. Most interestingly, my results show that these differences in behavior across affiliation did not exist before 1989, when the cross-guarantee authority was introduced.
JEL: 
G21
G28
G32
Document Type: 
Working Paper

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