THE IMPACT OF REGULATORY CHANGES ON THE RISK-TAKING BEHAVIOR OF STATECHARTERED SAVINGS BANKS

This study investigates changes in the risk-taking behavior of state c hartered savings banks resulting from three types of regulatory change s: the expansion of asset investment powers contained in the Depositor y Institutions Deregulation and Monetary Control Act of 1980 and the G arn-St Germain Depository Institutions Act (DIA) of 1982, the authorit y to change organizational structure from mutual to stock form contain ed in the Financial Institutions Regulatory and Interest Rate Control Act of 1978 and DIA, and the change in intensity of regulatory oversig ht contained in the Financial Institutions Reform, Recovery, and Enfor cement Act of 1989. Using data for New York state chartered savings ba nks for the period 1986 to 1991, the analysis found mixed results for the asset deregulation hypothesis that institutions eventually placed on the problem bank list invested more in deregulated assets. Strong s upport was found for the organizational structure hypothesis that stoc k savings banks have greater incentives to pursue value-maximizing lev els of risk by using more leverage, growing at faster rates, and incre asing credit risk. This finding suggests that the regulatory changes t hat permitted mutual to stock conversions may have had a significant n egative impact on the severity of the thrift crisis. The results also suggest that increased regulatory scrutiny limited the risk-taking of New York state chartered savings banks after 1988.