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Event-Study Evidence of the Value of Relaxing Longstanding Regulatory Restraints on Banks, 1970-2000

  • Kenneth A. Carow
  • Edward J. Kane

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8594.

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Date of creation: Nov 2001
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Publication status: published as Carow, Kenneth A. and Edward J. Kane. "Event-Study Evidence On The Value Of Relaxing Long-Standing Regulatory Restraints On Banks, 1970-2000," Quarterly Review of Economics and Finance, 2002, v42(3,Summer), 439-463.
Handle: RePEc:nbr:nberwo:8594
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