Strategic responses to regulatory threat in the credit card market

Victor Stango

No WP-02-02, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: In November 1991, federal lawmakers threatened to place a binding cap on credit card interest rates. I find that credit card rates declined following the regulatory threat, more so for larger and more politically visible credit card issuers. A set of stock market event studies reveals that interest rate cuts announced after the threat led to positive abnormal returns, both for announcing issuers and their rivals. This pattern does not exist for similar rate cuts made outside the period of regulatory threat. The results suggest that firms may experience private benefits to price-cutting when doing so mitigates regulatory threat, and spillover benefits when another firm cuts prices in order to ease regulatory threat.

Keywords: Credit cards; Consumer credit - Law and legislation (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-reg
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Related works:
Journal Article: Strategic Responses to Regulatory Threat in the Credit Card Market (2003)
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