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Vol. 17, No. 6
Last Updated: 09/13/1993

Why the life insurance industry did not face an "S&L-type" crisis

Elijah Brewer III , Thomas S. Mondschean, Philip E. Strahan

In this article we explore possible explanations for the divergence in behavior and performance between these two classes of financial institutions. First, we argue that in contrast to commercial banks and LICs, S&Ls were dangerously exposed to interest rate risk. As a result, when nominal interest rates rose sharply in the late 1970s, S&Ls experienced a larger decline in the market value of their portfolios than did LICs or banks.