International Economics

<< N°122

Issue Q2 2010  
Is There a Link Between the American S&L Crisis of the 80s and the Subprime Crisis? An Analysis of Bank Returns  
Loredana Ureche-Rangau
Aurore Burietz
Between 2000 and 2002, the American Federal Open Market Committee has strongly decreased its target rate. This decrease, associated with external economic factors as well as innovative financial practices has influenced investors’ behaviour. In this paper, we analyze the financial causes of the subprime crisis, in comparison with the American S&Ls crisis of the 1980s. We perform an event study on banks returns and show that only the monetary policy of the FED, i.e. interest rates, seems to have influenced, to some extent, these returns. Our analysis also stresses how securitization practices may explain one of the noticeable differences between the S&L crisis and the subprime crisis’ consequences while their origins seem to be similar. Abstract

Subprimes ; savings and loans ; securitization ; bank returns ; credit risk ; Keywords
G22 ; G30 ; G32 ; G38 ; JEL classification
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