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Event-study evidence of the value of relaxing long-standing regulatory restraints on banks, 1970-2000

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  • Carow, Kenneth A.
  • Kane, Edward J.

Abstract

In a partial-equilibrium model, removing a binding constraint creates value. However, in general equilibrium, the stakes of other parties in maintaining the constraint must be examined. In financial deregulation, the fear is that expanding the scope and geographic reach of very large institutions might unblock opportunities to build market power from informational advantages and size-related safety-net subsidies. This paper reviews and extends event-study evidence about the distribution of the benefits and costs of relaxing longstanding geographic and product-line restrictions on U.S. financial institutions. The evidence indicates that the new financial freedoms may have redistributed rather than created value. Event returns are positive for some sectors of the financial industry and negative for others. Perhaps surprisingly, where customer event returns have been investigated, they prove negative.

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 42 (2002)
Issue (Month): 3 ()
Pages: 439-463

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Handle: RePEc:eee:quaeco:v:42:y:2002:i:3:p:439-463

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Web page: http://www.elsevier.com/locate/inca/620167

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Cited by:
  1. Neil Bhutta, 2008. "Giving credit where credit is due? the Community Reinvestment Act and mortgage lending in lower-income neighborhoods," Finance and Economics Discussion Series 2008-61, Board of Governors of the Federal Reserve System (U.S.).
  2. Andreas Merikas & Sotiris K. Staikouras, 2008. "The Greek Bank-Insurance Model: A Look At A Not-So-New Corporate Structure," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 25-34.

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