Disclosure of Supervisory Actions and Deposit Volatility
Anya Kleymenova, Assistant Professor of Accounting
Rimmy Tomy, Assistant Professor of Accounting
The disclosure of enforcement actions (also referred to as Enforcement Decisions and Orders or EDOs) by bank supervisors results in depositors withdrawing their funds from the bank receiving the enforcement action (Kleymenova and Tomy, 2019). These results suggest the disclosure of regulatory actions leads to depositors imposing market discipline. How- ever, where do these deposits go? We find that deposits leaving the bank that receives an enforcement action (EDO-bank) end up in neighboring banks primarily in the same and surrounding counties. Furthermore, deposits return to the EDO-bank in the years after the enforcement action is terminated. Therefore, the disclosure of enforcement actions leads to increased volatility in deposits both for the EDO-bank as well as its neighboring banks. In the proposed project, we investigate the following: What impact does the disclosure-induced volatility in funding have on the lending activities of affected banks and local economic activity? Furthermore, what are the implications of the disclosure of enforcement actions on bank competition?
Bank Supervision and Organizational Capital: The Case of Minority Lending (with Byeongchan An, Robert Bushman, Anya Kleymenova), Journal of Accounting Research, 2024, 62(2), 505-549