The 1982 depository institutions act and security returns in the savings and loan industry

This paper provides empirical evidence on the market response to the 1982 Garn‐St. Germain Depository Institutions Act (DIA), as measured by changes in the prices of savings and loan associations' common stock. The analyses indicate positive, significant abnormal returns in the weeks immediately preceding both the passage of the DIA and the subsequent announcement of the specific terms of money market deposit accounts (MMDAs). No reaction to the surprise announcement of Super NOWs is found. Also, no significant changes in risk for savings and loans is detected surrounding the DIA and MMDA events. Consistent with the primary intent of DIA, this evidence suggests that investors perceived savings and loans to benefit from this legislation.