Enforcement of banking regulation and the cost of borrowing

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Title: Enforcement of banking regulation and the cost of borrowing
Author: Deli, Yota ; Delis, Manthos D. ; Hasan, Iftekhar ; Liu, Liuling
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
Series number: 19/2018
Year of publication: 2018
Publication date: 18.10.2018
Published in: Available also as Journal of Banking and Finance 2019 ; 101 ; April.
Pages: 60
Subject (yso): pankit; sääntely; luotot; hinnoittelu; hinnat; kustannukset
Keywords: pankkitoiminta
JEL: E44; E51; G21; G28
Other keywords: Bank supervision; Enforcement actions; Syndicated loans; Loan pricing
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.
Rights: https://helda.helsinki.fi/bof/copyright

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