The Market Reaction to the Disclosure of Supervisory Actions: Implications for Bank Transparency

Posted: 30 Jun 2000

See all articles by John S. Jordan

John S. Jordan

FitchRisk

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation

Abstract

We examine the stock market reaction to announcements of formal supervisory actions. We find that the variation in the quality and timeliness of disclosure by U.S. banks explains much of the variation in the market's reactions. We also find that these announcements can cause spillover effects. However, rather than representing contagion, these spillover effects are consistent with enhanced transparency. Only banks in the same region as the announcing bank, with similar exposures, are affected. Thus, enhanced disclosure can improve the allocation of resources in the banking system.

JEL Classification: G21, G28

Suggested Citation

Jordan, John S. and Peek, Joe and Rosengren, Eric S., The Market Reaction to the Disclosure of Supervisory Actions: Implications for Bank Transparency. Journal of Financial Intermediation, Vol. 9, No. 3, Available at SSRN: https://ssrn.com/abstract=228765

John S. Jordan

FitchRisk ( email )

17 State Street
New York, NY 10004
United States

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Eric S. Rosengren (Contact Author)

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3090 (Phone)
617-973-3219 (Fax)

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