WORLD.INST: Assessing Damages: The 1983 Israeli Bank Shares Crisis

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                ABSTRACTS IN ECONOMIC HISTORY
                     (c) 2001 EH.Net
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Name: Richard S. Grossman
Email: rgrossman@wesleyan.edu
Institution: Wesleyan University

Co-author: Asher A. Blass

Title: Assessing Damages: The 1983 Israeli Bank Shares Crisis

Internet Address of abstracted work: not available

By mail:
Richard S. Grossman
Department of Economics
Wesleyan University
Middletown, CT 06459

Language: English

Abstract:
In 1983, Israeli bank shares collapsed following several years during
which the banks had actively intervened to promote share prices and
thereby contributed to a 300 percent rise in real terms. During the
crisis the government assumed control of the banks, which they did
not begin to sell back to the public until 1993. We compare 1993 bank
share prices after the banks were partially re-listed on the Stock
Exchange with 1983 pre-crisis values. The 1993 time-adjusted market
values were 0 billion lower than in 1983, a decline borne by
pre-crisis share-holders ( billion) and by taxpayers ( billion).
Of this latter amount, two thirds represents a transfer from the
government to shareholders, while approximately one third represents
an efficiency loss-and hence a direct cost-resulting from government
ownership of the banks for ten years following the crisis. The
results highlight the risk inherent in a banking system that is both
concentrated and universal, and illustrates the costs associated with
sustained government ownership.

Bibliography: Blass, Asher A. and Richard S. Grossman. "Assessing
Damages: The 1983 Israeli Bank Shares Crisis." Contemporary Economic
Policy 19, January 2001, pp. 49-58.

Subject: H
Geographical Area: 2
Country/Region: Israel
Time Period: 9
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