Winners and Losers from Enacting the Financial Modernization Statute

Kenneth A. Carow, Edward Kane and Rajesh P. Narayanan

No 11256, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Previous studies of the announcement effects of relaxing administrative and legislative restraints show that signal events leading up to the enactment of the Financial Services Modernization Act (FSMA) increased the prices of several classes of financial-institution stocks. An unsettled question is whether the gains observed for these stocks arise mainly from projected increases in efficiency or from reductions in customer or competitor bargaining power. This paper documents that the value increase came at the expense of customers and competitors. The stock prices of credit-constrained customers declined during FSMA event windows and experienced significant increases in beta in the wake of its enactment. These findings reinforce evidence in the literature on bank mergers that large-bank consolidation is adversely affecting access to credit for capital-constrained firms.

JEL-codes: G21 G24 G28 L51 (search for similar items in EconPapers)
Date: 2005-04
New Economics Papers: this item is included in nep-fin
Note: CF
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