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Formal Enforcement Actions and Bank Behavior

Ntelis, MD, Staikouras, PK and Tsoumas, C (2016) Formal Enforcement Actions and Bank Behavior Management Science.

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Employing a unique data set for the period 2000-2010, this paper examines the impact of formal enforcement actions targeting the core of the banks’ financial safety and soundness in terms of bank capital, risk, and performance. We find that, on average, these actions reduce both the risk-weighted assets and the non-performing loans ratios of punished banks, but there is no increase in the level of regulatory capital. These effects are less powerful during the post-crisis period, suggesting that banks’ scope to improve their safety and soundness condition in crisis periods is much more limited. We also find, albeit with some limitations, that the timing of formal enforcement actions is important: the more the actions are deferred relative to the continuous deterioration of the banks’ financial condition, the more limited their impact on the risk-based capital ratio, while actions taken earlier help banks to improve their financial soundness.

Item Type: Article
Subjects : Surrey Business School
Divisions : Faculty of Arts and Social Sciences > Surrey Business School
Authors :
Ntelis, MD
Staikouras, PK
Tsoumas, C
Date : 29 February 2016
DOI : 10.1287/mnsc.2015.2343
Copyright Disclaimer : Copyright 2016 INFORMS
Uncontrolled Keywords : Formal enforcement actions; banking supervision; banks’ financial condition
Depositing User : Symplectic Elements
Date Deposited : 23 Aug 2016 15:44
Last Modified : 28 Feb 2017 02:08

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