FDICIA and bank failure contagion: Evidence from the two failures of first city bancorporation

Robert Weigand, Donald Fraser and Babu Baradwaj

Journal of Economics and Finance, 1999, vol. 23, issue 1, 99-111

Abstract: We investigate contagion effects from the two failures of First City Bancorporation—the only large regional bank to fail before and after FDICIA. FDICIA imposes changes in the bank failure resolution process that expose uninsured depositors to substantially greater risk. We find that shocks to First City’s weekly returns affect the conditional volatility of all but the most financially sound banks in the 1985–1987 period. This risk spillover effect is not evident in the period leading up to First City’s 1992 failure, however, which suggests that the regulatory changes embodied in FDICIA have not contributed to a more risky banking system. Copyright Springer 1999

Date: 1999
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DOI: 10.1007/BF02752691

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