Observing Enforcement: Evidence from Banking

Journal of Accounting Research, Volume 60, Issue 4 (2022)

Posted: 3 Nov 2022

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: September 1, 2022

Abstract

This paper finds that the disclosure of supervisory actions by bank regulators is associated with changes in their enforcement behavior. Using a novel sample of enforcement decisions and orders (EDOs) and a change in the disclosure regime, we find that regulators issue more EDOs, intervene sooner, and rely more on publicly observable signals following the regime change. EDO documents become longer, more complex, and contain more boilerplate language. Our results also indicate that intervention happens sooner and more frequently in counties with higher news circulation, which suggests that regulators take into account the public perception of their actions. We evaluate potentially confounding factors, including the savings and loan (S&L) crisis and competition from thrifts, and find robust results. We also study bank outcomes and document that uninsured deposits decline at EDO banks in the disclosure regime, especially for those covered in the news. Finally, we observe that bank failure accelerates despite improvements in capital ratios and asset quality. Overall, our research provides new insights on the disclosure of regulatory actions.

Keywords: banking; banking supervision; depository institutions; disclosure regulation; enforcement actions; market discipline; regulatory incentives

JEL Classification: E44, E58, G21, G28, G38, K23, L51, M41, M48, N20, N22

Suggested Citation

Kleymenova, Anya V. and Tomy, Rimmy, Observing Enforcement: Evidence from Banking (September 1, 2022). Journal of Accounting Research, Volume 60, Issue 4 (2022), Available at SSRN: https://ssrn.com/abstract=4246034

Anya V. Kleymenova

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 (Contact Author)

University of Chicago ( email )

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

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