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Enforcement of banking regulation and the cost of borrowing
Deli, Yota; Delis, Manthos D.; Hasan, Iftekhar; Liu, Liuling
We show that borrowing firms benefit substantially from important enforcement actions issued on U.S. banks for safety and soundness reasons. Using hand-collected data on such actions from the main three U.S. regulators and syndicated loan deals over the years 1997–2014, we find that enforcement actions decrease the total cost of borrowing by approximately 22 basis points (or $4.6 million interest for the average loan). We attribute our finding to a competition-reputation effect that works over and above the lower risk of punished banks post-enforcement and survives in a number of sensitivity tests. We also find that this effect persists for approximately four years post-enforcement. 36 month embargo - AC Update issue date during checkdate report - AC
Keyword(s): Bank supervision; Enforcement actions; Syndicated loans; Loan pricing; E44; E51; G21; G28
Publication Date:
2019
Type: Journal article
Peer-Reviewed: Unknown
Language(s): English
Institution: University College Dublin
Publisher(s): Elsevier
First Indexed: 2019-05-11 06:31:12 Last Updated: 2020-02-12 06:15:11