Observing Enforcement: Evidence from Banking

Anya V. Kleymenova and Rimmy Tomy
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Anya V. Kleymenova: https://www.federalreserve.gov/econres/anya-v-kleymenova.htm

No 2021-049, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: 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.

Keywords: Disclosure; Enforcement actions; Regulatory incentives; Banking (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 104 p.
Date: 2021-08-02
New Economics Papers: this item is included in nep-ban, nep-cba and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Observing Enforcement: Evidence from Banking (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-49

DOI: 10.17016/FEDS.2021.049

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