Regulation of deposit-taking institutions: Price effect at disclosures of new regulations

• Main Authors: Ahmad, Nor Hayati, Ariff, Mohamed
• Format: Article
• Language: English
• Published: Universiti Utara Malaysia 2005
• Subjects: HG Finance
• Online Access: http://repo.uum.edu.my/3564/1/Nor3.pdf; http://repo.uum.edu.my/3564/; http://epublications.bond.edu.au/ijbf/vol3/iss1/4/

This paper presents findings on the impact of revisions to a unique bank regulation yet studied. An old hypothesis in banking literature is tested by examining share price reactions to two-way changes to statutory reserve ratio (SRR) requirement over a recent eight-year period. Announcements of these regulatory changes appear to lead to statistically and economically significant abnormal returns.These new findings suggest that a decrease in statutory reserve has a risk-reducing effect on financial institutions. Thus, his study provides a test of the prediction of theory that SRR is a powerful macroeconomic policy tool to revive an economy in the aftermath of a financial crisis.