Market reaction to supranational banking supervision in Europe: Do firm- and country-specific factors matter?
- PDF / 1,207,077 Bytes
- 29 Pages / 439.37 x 666.142 pts Page_size
- 84 Downloads / 195 Views
Market reaction to supranational banking supervision in Europe: Do firm‑ and country‑specific factors matter? Myriam García‑Olalla1 · Manuel Luna1 Accepted: 26 September 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This paper investigates the financial market´s perception regarding the effectiveness of the Single Supervisory Mechanism in Europe. Do investors believe that centralized supervision adds value compared to multiple supervision? . Do they feel uncertain about the supervisory role of the ECB? To answer these questions, a sample of 118 European Banks has been used finding that whereas in early dates the market reaction was positive reflecting the expectation of greater stability, it turned negative at the time the scope of the supervision was limited to only a group of banks. As might be expected, the reaction is significantly more negative for the directly supervised entities, anticipating a different and more demanding style of supervision that could lead to higher cost. This negative wealth effect is intensified for banks with higher price-to-book ratios or those located in countries with more developed financial systems and better investor protection. However, solvency and productivity firm indicators or low levels of perceived corruption moderate it. This research not only highlights the doubts and uncertainty of investors about the final applications of the SSM, but it could be also useful for policy makers and regulators in order to achieve a more harmonized supervision that improves the credibility of the systems and promote financial stability. Keywords European banking union · Financial regulation · SSM · Stock prices · Event studies JEL Classification G14 · G21 · G38 · M21
* Myriam García‑Olalla [email protected] Manuel Luna [email protected] 1
Department of Business Administration, University of Cantabria, Avda Castros s/n, 39005 Santander, Spain
13
Vol.:(0123456789)
Empirica
1 Introduction The European Banking Union, initiated in 2012, has had an undeniable impact on the governance of banking entities, but there is still a long way to go to consolidate the industry in terms of greater financial stability. The financial crisis has evidenced the failures in the governance of these entities, insofar as those banks that supposedly fulfilled the standards of ‘good practices’ have been the ones that suffered the consequences of the crisis the most. This crisis was exacerbated by different factors such as the fragmentation in the supervision of the large and cross‐border banks, deficiencies in the application of EU legislation and the existence of inadequate mechanisms at the national level for the supervision of integrated financial markets (Quaglia 2013; Beck and Wagner 2016). Since then, international organizations have focused on prudential regulation as the best way to prevent or avoid the recurrence of a crisis of such magnitude and to restore confidence in financial markets. Examples of this are the important legislative changes res
Data Loading...
