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
There are 2 versions of this paper
Event-Study Evidence of the Value of Relaxing Longstanding Regulatory Restraints on Banks, 1970-2000
Event-Study Evidence of the Value of Relaxing Longstanding Regulatory Restraints on Banks, 1970-2000
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: Suggested Citation
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