Date of Award

Spring 1-1-2015

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

Sanjai Bhagat

Second Advisor

Mattias Nilsson

Third Advisor

Jamie Brown

Fourth Advisor

Tony Cookson

Fifth Advisor

Shaun Davies

Abstract

The first chapter examines the impact of bank regulatory enforcement actions on the competitive structure of banking markets. As regulatory actions are intended to correct safety and soundness concerns within a troubled bank and can significantly limit a bank's behavior, I examine the response of rival banks to this operational constraint. Specifically, I explore whether there is a shift in local competition and the subsequent implications of the change in competition for bank stability and profitability. My findings demonstrate a decline in local bank competition, which then results in greater stability for rivals within the market. The reduction in competition does not appear to affect bank profitability.

The second chapter studies the differences in regulatory effectiveness across the three U.S. bank regulatory agencies. Since practices are rarely uniform across territories even within the same agency, I then examine the regional differences in regulatory effectiveness. I find that there exists large variations between agencies with respect to the efficacy of corrective sanctions. This heterogeneity persists even within the same agency, with evidence documenting broad disparity in the outcomes of intervention across districts. In discerning the reasons behind behind the differences, I provide evidence of the constrained cop hypothesis and show that stricter agencies are more effective at implementing sanctions.

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