Submitted manuscript, 1.17 MB, PDF document
Research output: Working paper
Research output: Working paper
}
TY - UNPB
T1 - The real effects of regulatory enforcement actions
T2 - evidence from U.S. counties
AU - Danisewicz, Piotr
AU - McGowan, Danny
AU - Onali, Enrico
AU - Schaeck, Klaus
PY - 2014
Y1 - 2014
N2 - We highlight an important macro-financial linkage: Severe regulatory enforcement actions such as Formal agreements, Prompt corrective actions, and Cease and desist orders on banks trigger temporarily adverse effects for the macroeconomy. We use instrumental variables regressions to show that such actions imposed on single-market banks reduce personal income growth, the number of establishments, and increase unemployment in U.S. counties. These effects are related to contractions in bank lending and liquidity creation. Our identification is sharpened by a series of tests based on falsification tests and placebo enforcement actions. We can rule out several alternative explanations that may confound our results.
AB - We highlight an important macro-financial linkage: Severe regulatory enforcement actions such as Formal agreements, Prompt corrective actions, and Cease and desist orders on banks trigger temporarily adverse effects for the macroeconomy. We use instrumental variables regressions to show that such actions imposed on single-market banks reduce personal income growth, the number of establishments, and increase unemployment in U.S. counties. These effects are related to contractions in bank lending and liquidity creation. Our identification is sharpened by a series of tests based on falsification tests and placebo enforcement actions. We can rule out several alternative explanations that may confound our results.
KW - bank distress
KW - enforcement actions
KW - local economic growth
KW - macro-financial linkages
M3 - Working paper
SP - 1
EP - 44
BT - The real effects of regulatory enforcement actions
ER -