Enforcement of banking regulation and the cost of borrowing

Yota Deli (), Manthos Delis (), Iftekhar Hasan and Liuling Liu

Journal of Banking & Finance, 2019, vol. 101, issue C, 147-160

Abstract: 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.

Keywords: Bank supervision; Enforcement actions; Syndicated loans; Loan pricing (search for similar items in EconPapers)
JEL-codes: E44 E51 G21 G28 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426619300238
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Enforcement of banking regulation and the cost of borrowing (2019)
Working Paper: Enforcement of banking regulation and the cost of borrowing (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:101:y:2019:i:c:p:147-160

DOI: 10.1016/j.jbankfin.2019.01.016

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().