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Enforcement of banking regulation and the cost of borrowing

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

No 19/2018, Research Discussion Papers from Bank of Finland

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 forces banks to lower their cost of credit, irrespective of other changes in their business models after the enforcement action.

JEL-codes: E44 E51 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mac
Date: 2018-10-18
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Journal Article: Enforcement of banking regulation and the cost of borrowing (2019) Downloads
Working Paper: Enforcement of banking regulation and the cost of borrowing (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bof:bofrdp:2018_019

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