IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/3415.html
   My bibliography  Save this paper

The Continued Interest Rate Vulnerability of Thrifts

Author

Listed:
  • Patric H. Hendershott
  • James D. Shilling

Abstract

The 1980s S&L debacle is generally viewed as the result of: (1) sharply rising interest rates eliminating the net worth of thrifts funding fixed-rate loans with short-term deposits and (2) thrifts responding by taking even greater interest-rate and credit risks. The question investigated in this paper is how vulnerable do thrifts remain to an interest rate experience like that which triggered the 1980s S&L debacle? The short answer is that thrifts are even more vulnerable in 1989 than they were in 1977. The dollar volume of fixed-rate mortgages funded by short-term deposits in 1989, $400 billion, is slightly greater now than it was in 1977, and thrifts have also put over $325 billion of adjustable-rate loans with rate caps on their balance sheets. A sharp rise in interest rates (the one-year Treasury rate rose by 9 percentage points between 1977 and 1981) would cause significant losses on these capped loans, as well as on the fixed-rate loans.

Suggested Citation

  • Patric H. Hendershott & James D. Shilling, 1990. "The Continued Interest Rate Vulnerability of Thrifts," NBER Working Papers 3415, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3415
    Note: ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w3415.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Patric H. Hendershott, 1985. "Pricing Adjustable Rate Mortgages," NBER Working Papers 1548, National Bureau of Economic Research, Inc.
    2. Stephen A. Buser & Patric H. Hendershott & Anthony B. Sanders, 1985. "Pricing Life‐of‐Loan Rate Caps on Default‐Free Adjustable‐Rate Mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 248-260, September.
    3. George G. Kaufman, 1984. "Measuring and managing interest rate risk: A primer," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 8(Jan), pages 16-29.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Patric H. Hendershott & Herbert M. Kaufman (ary), 1992. "The market for home mortgage credit: recent changes and future prospects," Proceedings, Federal Reserve Bank of St. Louis, pages 99-127.
    2. Martin Hellwig, 2009. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis," De Economist, Springer, vol. 157(2), pages 129-207, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sprecher, C. R. & Willman, Elliott, 1998. "The Margin Paradox in Adjustable-Rate Mortgages," Journal of Housing Economics, Elsevier, vol. 7(2), pages 180-190, June.
    2. Raymond Chiang & Thomas F. Gosnell & Andrea J. Heuson, 1997. "Evaluating the Interest-Rate Risk of Adjustable-Rate Mortgage Loans," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 77-94.
    3. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    4. Eduardo S. Schwartz & Walter N. Torous, 1991. "Caps on Adjustable Rate Mortgages: Valuation, Insurance, and Hedging," NBER Chapters, in: Financial Markets and Financial Crises, pages 283-304, National Bureau of Economic Research, Inc.
    5. Eddie Lam, 2002. "A Risk Management Model for MBS Issuers," International Real Estate Review, Global Social Science Institute, vol. 5(1), pages 169-195.
    6. Anthony Pennington‐Cross & Giang Ho, 2008. "Predatory Lending Laws and the Cost of Credit," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(2), pages 175-211, June.
    7. Stephen A. Buser & Patric H. Hendershott & Anthony B. Sanders, 1988. "On the Determinants of the Value of Call Options on Default-Free Bonds," NBER Working Papers 2529, National Bureau of Economic Research, Inc.
    8. Sprecher, C. R. & Willman, Elliott, 2000. "The Role of the Initial Discount in the Pricing of Adjustable-Rate Mortgages," Journal of Housing Economics, Elsevier, vol. 9(1-2), pages 64-75, March.
    9. Patric H. Hendershott, 1986. "Mortgage Pricing: What Have We Learned So Far?," NBER Working Papers 1959, National Bureau of Economic Research, Inc.
    10. James D. Shilling & C.F. Sirmans & John D. Benjamin, 1987. "On Option‐Pricing Models in Real Estate: A Critique," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 742-752, March.
    11. Norman Zakiyy & Kamal Halili Hassan, 2016. "The Management Process at the Pretrial Stage under Malaysian Rules of Court 2012," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 2, ejes_v2_i.
    12. Anatoli Kuprianov, 1998. "Money market futures," Monograph, Federal Reserve Bank of Richmond, number 1998mm.
    13. Michael T. Belongia & G. J. Santoni, 1984. "Hedging interest rate risk with financial futures: some basic principles," Review, Federal Reserve Bank of St. Louis, vol. 66(Oct), pages 15-25.
    14. Galen Sher & Giuseppe Loiacono, 2013. "Maturity Transformation and Interest Rate Risk in Large European Bank Loan Portfolios," EcoMod2013 5442, EcoMod.
    15. Dai, Ya & Guo, Liang & Zhang, Hongxian & Liu, Yu, 2020. "On-balance-sheet duration hedging and firm value," International Review of Financial Analysis, Elsevier, vol. 71(C).
    16. Don M. Chance, 1994. "The Pricing And Hedging Of Limited Exercise Caps And Spreads," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(4), pages 561-584, December.
    17. Lara Coulier & Alessio Reghezza, 2024. "Are low interest rates firing back? Interest rate risk in the banking book and bank lending in a rising interest rate environment," BIS Working Papers 1202, Bank for International Settlements.
    18. David L. Mengle & John R. Walter, 1985. "A review of bank performance in the Fifth District, 1984," Economic Review, Federal Reserve Bank of Richmond, vol. 71(Jul), pages 12-22.
    19. Patric H. Hendershott & William R. Schultz, 1993. "Equity and Nonequity Determinants of FHA Single‐Family Mortgage Foreclosures in the 1980s," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(4), pages 405-430, December.
    20. Kane, Edward J & Unal, Haluk, 1990. "Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms," Journal of Finance, American Finance Association, vol. 45(1), pages 113-136, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3415. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.