Risk exposure is a central issue in the continuing debate over the wisdom of allowing bank holding companies to expand into nonbank activities. This paper examines the relation between bank holding company risk and the composition of nonbank assets. The empirical evidence indicates that risk is...

It has been argued that underpriced federal deposit insurance provides incentive for insured institutions to increase the value of shareholder equity by expanding into activities that shift risk onto the deposit insurer. Derivative instruments have been used by firms to change their risk...

This paper analyzes how financial markets reacted to S&L diversification into junk bonds. The authors report that junk bond holdings are positively correlated with both the volatility of S&L equity returns and the interest rates paid on large CDs. Next, they examine the impact of junk bonds on...