Enforcement of banking regulation and the cost of borrowing

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

Open Access publications from School of Economics, University College Dublin

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)
Pages: 14 pages
Date: 2019-01
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (18)

Published in: Journal of Banking & Finance, 101() 2019-01-29

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http://hdl.handle.net/10197/9909 Open Access version, 2019 (application/octet-stream)

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Journal Article: Enforcement of banking regulation and the cost of borrowing (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:oapubs:10197/9909

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