Observing Enforcement: Evidence from Banking

104 Pages Posted: 10 Aug 2021 Last revised: 7 Sep 2021

See all articles by Anya Kleymenova

Anya Kleymenova

Board of Governors of the Federal Reserve System

Rimmy E. Tomy

University of Chicago

Multiple version iconThere are 3 versions of this paper

Date Written: August, 2021


This paper finds that the disclosure of supervisory actions is associated with changes in regulators' enforcement behavior. Using a novel sample of enforcement decisions and orders (EDOs) and the setting of the 1989 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which required the public disclosure of EDOs, we find that U.S. bank regulators issue more EDOs, intervene sooner, and rely more on publicly observable signals after the disclosure regime change. The content of EDOs also changes, with documents becoming more complex and boilerplate. Our results are stronger in counties with higher news circulation, indicating that disclosure plays an incremental role in regulators' changing behavior. We evaluate the main potentially confounding changes around FIRREA, including the S&L crisis and competition from thrifts, and find robust results. We also study changes in bank outcomes following the regime change and find that uninsured deposits decline at EDO banks, especially for banks with EDOs covered in the news. Finally, we observe that bank failure accelerates despite improvements in capital ratios and asset quality.

JEL Classification: G21, G28

Suggested Citation

Kleymenova, Anya V. and Tomy, Rimmy, Observing Enforcement: Evidence from Banking (August, 2021). FEDS Working Paper No. 2021-49, Available at SSRN: https://ssrn.com/abstract=3902309 or http://dx.doi.org/10.17016/FEDS.2021.049

Anya V. Kleymenova (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2662 (Phone)

Rimmy Tomy

University of Chicago ( email )

Booth School of Business
5807 S Woodlawn Ave
Chicago, IL 60637
United States

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