Stock Market Reaction to Regulatory Action in the Continental Illinois Crisis

摘要: Continental Illinois Corporation is a bank holding company whose principal subsidiary National Bank, wholesale unit bank.' In December 1983, it was the eighth largest in United States and Midwest. It had assets of $42.1 billion, 75% which were financed by rate sensitive liabilities.2 Restricted law from branching, relied heavily on large deposits other domestic banks (about 16%) foreign (40%). These liquid short-term deposits, their withdrawal precipitating factor virtual collapse May 1984. Moreover, insured amounted to only $3 billion (Isaac 1984, p. 3). Thus bearing high liquidity risk interest risk, relative money center banks. This study examines stock market reaction crisis regulatory action taken response that crisis. Through use data, this reveals there significant terms both negative abnormal returns positive volume trading. The most effect found those amount Latin American debt nonperforming assets. But while clear information revealed about banks' asset quality policy, depositors apparently did not withdraw funds massive way regulators anticipated. * I am grateful for comments suggestions Joseph Aharony, Gabriel Hawawini, Barbara Paul, Ramon Rabinovitch, Anthony Saunders, Henny Sender, referees Journal. 1. distinction between an important issue discussed later (see Black, Miller, Posner 1978; Swary 1983). "bank" "holding company" are used interchangeably. 2. For various measures these risks industry comparison, see Bank Analysts' Quarterly Handbook (1984).