Authors: Christos Tsoumas

Title: Regulatory enforcement: Discipline on healthy BHC's affiliates

Abstract

This study examines the effect regulatory enforcement actions, imposed on a BHC affiliated commercial bank or the BHC itself, have on the healthy, i.e., non-punished, BHC's commercial bank members of the group. The results suggest that in the pre-crisis period, enforcement actions related to safety and soundness reasons, and to internal control and audit systems of a bank, triggered a disciplinary reaction of BHCs' healthy affiliates. In the post-crisis era however, such a disciplinary mechanism has been severely restricted. Perhaps more interestingly, enforcement actions related to safety and soundness reasons of the BHC itself in the post-crisis era, resulted to a severe reduction of the balance sheet of the healthy bank subsidiaries.