Supervisory Enforcement Actions and Depositors’ Reaction: Monitoring, Running, or Living a Quiet Life?

59 Pages Posted: 28 Jul 2017

See all articles by Manthos D. Delis

Manthos D. Delis

Montpellier Business School

Panagiotis Staikouras

University of Piraeus

Chris Tsoumas

Hellenic Open University

Multiple version iconThere are 2 versions of this paper

Date Written: July 26, 2017

Abstract

Public announcement of formal enforcement actions against banks for safety and soundness reasons may enhance effective depositor monitoring or cause depositors to overreact, leading to disruptive runs. We test these competing hypotheses, using hand-collected data on enforcement actions and bank-quarter or branch-year data on deposits and other bank characteristics from 2000 through 2014. Our baseline results show that total deposits at punished banks decrease by 9.5% in the post-enforcement year, with uninsured deposits declining by 20% and insured deposits falling by 7.9%. These findings survive in a large battery of robustness tests and highlight that enforcement actions enhance rational depositor monitoring over and above punished banks’ financial condition.

Keywords: Enforcement actions, Bank deposits, Depositor monitoring

JEL Classification: G21, G28, G01

Suggested Citation

Delis, Manthos D. and Staikouras, Panagiotis and Tsoumas, Chris, Supervisory Enforcement Actions and Depositors’ Reaction: Monitoring, Running, or Living a Quiet Life? (July 26, 2017). European Banking Institute Working Paper Series 2017 - no. 10. Available at SSRN: https://ssrn.com/abstract=3009125 or http://dx.doi.org/10.2139/ssrn.3009125

Manthos D. Delis (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Panagiotis Staikouras

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
Piraeus, Attika 18534
Greece

Chris Tsoumas

Hellenic Open University ( email )

Parodos Aristotelous 18
26335 Patra
Greece

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