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Impact of deposit rate deregulation in Hong Kong on the market value of commercial banks

  • Kwan, Simon H.

This paper examines the impact of deposit rate deregulation on the market value of banks in Hong Kong. We do not find that the release of the Consumer Council's Report "Are Hong Kong Depositors Fairly Treated?" in 1994 was associated with any significant stock market reaction, contrary to the hypothesis that banks had been extracting excess profits from depositors under the Interest Rate Rules ("IRR"). Even when the government decided to start deregulating time deposit interest rates, the stock market was indifferent to the announcement, further suggesting the lack of subsidy was incidental to the IRRs. The recent announcement of complete deregulation of the IRRs, however, was found to be associated with a significant positive stock market response. The findings suggest that IRRs deregulation would benefit, rather than hurt, bank earnings. Furthermore, large banks and banks with high growth rates, high net interest margins, and high liability costs are found to benefit more from deregulation.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 27 (2003)
Issue (Month): 12 (December)
Pages: 2231-2248

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Handle: RePEc:eee:jbfina:v:27:y:2003:i:12:p:2231-2248
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  2. Millon-Cornett, Marcia H. & Tehranian, Hassan, 1989. "Stock market reactions to the depository institutions deregulation and monetary control act of 1980," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 81-100, March.
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  8. Jordan, William A, 1972. "Producer Protection, Prior Market Structure and the Effects of Government Regulation," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 151-76, April.
  9. Saunders, Anthony & Smirlock, Michael, 1987. "Intra- and Interindustry Effects of Bank Securities Market Activities: The Case of Discount Brokerage," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(04), pages 467-482, December.
  10. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer.
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  12. Song, Frank M, 1994. "A Two-Factor ARCH Model for Deposit-Institution Stock Returns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 323-40, May.
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  14. Bob Y. Chan & Terence Khoo, 1998. "An Analysis of the Deposit-taking Market of Hong Kong," Review of Industrial Organization, Springer, vol. 13(6), pages 651-667, December.
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