Securities Class Actions in the US Banking Sector: Between Investor Protection and Bank Stability

30 Pages Posted: 4 Jul 2009 Last revised: 29 Oct 2009

See all articles by Lucia Dalla Pellegrina

Lucia Dalla Pellegrina

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Margherita Saraceno

University of Pavia - Department of Law

Date Written: June 30, 2009

Abstract

The ongoing financial crisis has made it clear that bureaucratic supervisors and public enforcement authorities are encountering serious difficulties in ensuring both bank stability and credit risk control. According to part of the literature, securities class actions (SCA) can be considered as a complementary tool to public supervision in regulating and supervising markets and corporations. This paper aims at investigating whether SCA can also play a role in banking supervision acting as an effective incentive device for banks’ management to carefully evaluate risks and/or can represent a warning signal of risk of insolvency, which could be taken into account by public supervisors. Two groups of US banks are compared in the period 2000-2008. The first – treated – group includes banks that have faced a SCA in the past, while the second – control – group includes banks never involved in such a procedure. Results seem to suggest that collective private litigation procedures can be used to improve ex post regulation in the banking sector.

Keywords: securities class action, bank safety, corporate governance, market governance

JEL Classification: G3, K4

Suggested Citation

Dalla Pellegrina, Lucia and Saraceno, Margherita, Securities Class Actions in the US Banking Sector: Between Investor Protection and Bank Stability (June 30, 2009). CLEA 2009 Annual Meeting Paper; Paolo Baffi Centre Research Paper No. 2009-61. Available at SSRN: https://ssrn.com/abstract=1427814 or http://dx.doi.org/10.2139/ssrn.1427814

Lucia Dalla Pellegrina (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Margherita Saraceno

University of Pavia - Department of Law ( email )

Pavia, I-27100

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