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Securities class actions in the US banking sector: Between investor protection and bank stability

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  • Dalla Pellegrina, Lucia
  • Saraceno, Margherita

Abstract

This paper investigates whether securities class actions (SCAs) can play a role in banking supervision, both as a warning signal of insolvency and as an instrument of market discipline to encourage bank managers to carefully evaluate risk. Two groups of US banks are compared over the 2000â2008 period. One includes banks that have faced at least one SCA, while the other is composed of non-targeted banks (control group). Results indicate that collective private litigation procedures are more frequently directed at financially fragile intermediaries exhibiting inadequate governance standards. Furthermore, banks which have been subjected to SCAs are likely to reduce their excessive risk positions. This supports the idea that SCAs could be efficiently employed as a complement to public supervisory activity in the banking sector.

Suggested Citation

  • Dalla Pellegrina, Lucia & Saraceno, Margherita, 2011. "Securities class actions in the US banking sector: Between investor protection and bank stability," Journal of Financial Stability, Elsevier, vol. 7(4), pages 215-227, December.
  • Handle: RePEc:eee:finsta:v:7:y:2011:i:4:p:215-227
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:finsta:v:30:y:2017:i:c:p:1-15 is not listed on IDEAS
    2. Dalla Pellegrina Lucia & Saraceno Margherita, 2011. "Securities Class Actions: A Helping Hand for Bank Regulators in Trouble?," Review of Law & Economics, De Gruyter, vol. 7(1), pages 214-242, July.
    3. Lucia Dalla Pellegrina & Margherita Saraceno, 2016. "Can Shareholder Litigation Discipline CEO Bonuses in the Financial Sector? The Role of Securities Class Actions," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 45(1), pages 3-36, February.

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