Winners and Losers from Enacting the Financial Modernization Statute

37 Pages Posted: 31 Jul 2006 Last revised: 5 Oct 2022

See all articles by Kenneth A. Carow

Kenneth A. Carow

Indiana University - Kelley School of Business - Department of Finance

Edward J. Kane

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Rajesh Narayanan

Louisiana State University

Date Written: April 2005

Abstract

Previous studies of the announcement effects of relaxing administrative and legislative restraints show that signal events leading up to the enactment of the Financial Services Modernization Act (FSMA) increased the prices of several classes of financial-institution stocks. An unsettled question is whether the gains observed for these stocks arise mainly from projected increases in efficiency or from reductions in customer or competitor bargaining power. This paper documents that the value increase came at the expense of customers and competitors. The stock prices of credit-constrained customers declined during FSMA event windows and experienced significant increases in beta in the wake of its enactment. These findings reinforce evidence in the literature on bank mergers that large-bank consolidation is adversely affecting access to credit for capital-constrained firms.

Suggested Citation

Carow, Kenneth A. and Kane, Edward J. and Narayanan, Rajesh, Winners and Losers from Enacting the Financial Modernization Statute (April 2005). NBER Working Paper No. w11256, Available at SSRN: https://ssrn.com/abstract=701182

Kenneth A. Carow

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
317-274-2783 (Phone)
317-274-3312 (Fax)

Edward J. Kane (Contact Author)

Boston College - Department of Finance ( email )

Fulton Hall
Chestnut Hill, MA 02467
United States
520-299-5066 (Phone)
617-552-0431 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rajesh Narayanan

Louisiana State University ( email )

Baton Rouge, LA 70803-6308
United States
225-578-6236 (Phone)

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