Article Abstract:
Methods of determining the interest-rate risk undertaken by banks are examined, both in the case of very flexible interest rates and perfect competition, and when interest rates are not responsive to market rate changes or when competition is imperfect. Existing literature on bank solvency and market value suggest that besides the current value of liabilities and assets, the value of the bank's charter or goodwill must also be considered. Measuring interest rate risk must take into account current and future interest margins and their interest-rate sensitivity. The value of the bank charter varies from case to case, but it is certainly a factor in cases of interest-rate flexibility, also known as 'stickiness', and imperfect competition.
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Article Abstract:
Beginning January 1, 1982, an amendment to the Illinois Bank Holding Company Act of 1957 made geographic expansion of full-service banking legal. After analyzing the stock market's response to the amendment, via a case study of four Chicago-based bank holding companies, it was found that very little intra-state expansion had taken place. Antitrust laws are the probable cause of the lack of expansion, and it is also noted that relaxing the regulations prohibiting interstate banking would probably not result in an overconcentration in the marketplace.
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Article Abstract:
The failure of the First Pennsylvania Bank was due to a combination of incompetency, speculation and bad luck. The return-on-equity model is used to analyze the bank's performance. Analysis of bank data starting ten years before the failure shows symptoms of trouble with the loan portfolio, investment strategy, gap management and expense controls. Problems were seen in analysis a full six years before the bank failed. It was ultimately bailed out by the government. A model and tables on the bank's performance are included.
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