The value of being systemically important: event study on regulatory announcements for banks

It is assumed that the awarding of a 'systemic importance' seal by the regulator has a positive effect on the equity value of its holder. By employing an event study analysis on a new set of regulatory announcements, we find that financial market participants react to these announcements w...

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Bibliographic Details
Published in:Applied financial economics 2014-12, Vol.24 (24), p.1585-1604
Main Authors: Kleinow, Jacob, Nell, Tobias, Rogler, Silvia, Horsch, Andreas
Format: Article
Language:English
Subjects:
bailout
Bank regulation
banking regulation
Banks
Capital market
Credit market
Financial crisis
Financial economics
Judgment
Moral hazard
Rates of return
Regulation of financial institutions
Securities markets
Shareholders wealth
Studies
systemic risk
too big to fail
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Summary:It is assumed that the awarding of a 'systemic importance' seal by the regulator has a positive effect on the equity value of its holder. By employing an event study analysis on a new set of regulatory announcements, we find that financial market participants react to these announcements which are, in effect, judgements that a certain credit institution is systemically important. However, the stock returns found for the respective banks are not exclusively positive; a phenomenon for which we provide explanations. Furthermore, our results show that market reactions on the most present event are weakest, indicating that the announcements' informational value to market participants diminished.
ISSN:0960-3107
1466-4305
DOI:10.1080/09603107.2014.925055