Event-Study Evidence of the Value of Relaxing Longstanding Regulatory Restraints on Banks, 1970-2000

Kelley School of Business Working Paper

40 Pages Posted: 3 Oct 2001

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)

Multiple version iconThere are 2 versions of this paper

Date Written: September 27, 2001

Abstract

In a partial-equilibrium model, removing a binding constraint creates value. However, in general equilibrium, the stakes of other parties in maintaining the constraint must be examined. In financial deregulation, the fear is that expanding the scope and geographic reach of very large institutions might unblock opportunities to build market power from informational advantages and size-related safety-net subsidies.

This paper reviews and extends event-study evidence about the distribution of the benefits and costs of relaxing longstanding geographic and product-line restrictions on U.S. financial institutions. The evidence indicates that the new financial freedoms may have redistributed rather than created value. Event returns are positive for some sectors of the financial industry and negative for others. Perhaps surprisingly, where customer event returns have been investigated, they prove negative.

Keywords: Financial institutions, banks, deregulation, event study, deposit insurance

JEL Classification: G21

Suggested Citation

Carow, Kenneth A. and Kane, Edward J., Event-Study Evidence of the Value of Relaxing Longstanding Regulatory Restraints on Banks, 1970-2000 (September 27, 2001). Kelley School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=285507 or http://dx.doi.org/10.2139/ssrn.285507

Kenneth A. Carow (Contact Author)

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

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

Edward J. Kane

Boston College - Department of Finance ( email )

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United States
520-299-5066 (Phone)
617-552-0431 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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