Working Paper: CEPR ID: DP9502
Authors: Alexander Schaefer; Isabel Schnabel; Beatrice Weder di Mauro
Abstract: We analyze the reactions of stock returns and CDS spreads of banks from Europe and the United States to four major regulatory reforms in the aftermath of the subprime crisis, employing an event study analysis. In contrast to the public perception that nothing has happened, we find that financial markets indeed reacted to the structural reforms enacted at the national level. All reforms succeeded in reducing bail-out expectations, especially for systemic banks. However, banks' profitability was also affected, showing up in lower equity returns. The strongest effects were found for the Dodd-Frank Act (especially the Volcker rule), whereas market reactions to the German restructuring law were small.
Keywords: Dodd-Frank Act; Event Study; Financial Sector Reform; Financial Stability; German Restructuring Law; Swiss Too-Big-To-Fail Regulation; Vickers Reform; Volcker Rule
JEL Codes: G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Dodd-Frank Act (G28) | equity prices (G12) |
| Dodd-Frank Act (G28) | CDS spreads (G12) |
| Volcker Rule (G18) | equity prices (G12) |
| Volcker Rule (G18) | CDS spreads (G12) |
| Vickers reform (E65) | equity prices (G12) |
| Vickers reform (E65) | CDS spreads (G12) |
| German restructuring law (K35) | equity prices (G12) |
| German restructuring law (K35) | CDS spreads (G12) |
| Swiss too-big-to-fail regulation (G28) | equity prices (G12) |
| Swiss too-big-to-fail regulation (G28) | CDS spreads (G12) |
| regulatory reforms (G18) | bailout expectations (G28) |