U.S. Banking Sector Risk in an Era of Regulatory Change: A Bivariate GARCH Approach

This paper assesses the impact of regulatory change on the risk and returns of the U.S. banking industry. The impact of five major regulatory changes on banking sector risk was assessed using daily data for eighteen major U.S. regional banks, money center banks and savings and loan type depository i...

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Bibliographic Details
Published in:Review of quantitative finance and accounting 2000-01, Vol.14 (1), p.17-43
Main Authors: Brooks, Robert D, Faff, Robert W, McKenzie, Michael D, Ho, Yew Kee
Format: Article
Language:English
Subjects:
Bank regulation
banking
Banking industry
Banking system
Beta
Depository Institutions Deregulation & Monetary Control Act 1980-US
Estimates
Federal regulation
finance
Money center banks
Regional banks
Regulation
return on investment
Risk
Stochastic models
Stochastic processes
Studies
U.S.A
uncertainty
USA
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Summary:This paper assesses the impact of regulatory change on the risk and returns of the U.S. banking industry. The impact of five major regulatory changes on banking sector risk was assessed using daily data for eighteen major U.S. regional banks, money center banks and savings and loan type depository institutions. Risk in this case was proxied via the use of an M-GARCH model which generates time dependent conditional beta estimates. The evidence obtained suggests that the impact of deregulation and reregulation on banking sector risk is case specific. Further, the results obtained show that the market model incorporating dummy variables, which has proven so popular amongst existing studies, discards important information about the variability of beta which the time varying conditional betas capture. [PUBLICATION ABSTRACT]
ISSN:0924-865X
1573-7179
DOI:10.1023/A:1008324023419