The Single Supervisory Mechanism—A Curse or a Blessing for Banks’ Credibility

• In Event: Reception with ELS posters
  In Poster Session: Poster 6

Abstract

This paper uses the introduction of the Single Supervisory Mechanism (SSM) in the euro-banking area in 2014 to investigate whether the new supervisory body was able to enhance banks’ credibility. Applying a difference-in-differences research design I exploit the fact that the change in banking supervision affected only some but not all banks in Europe. Using earnings response coefficients as a proxy to account for banks’ credibility, my first results show that banks that are exposed to the new banking supervision experience an increase in credibility compared to banks that remain under the respective national banking supervision. Cross-sectional analyses reveal that the incremental effect is positive and statistical significant for banks that were previously facing supervisors with strong influence in banks’ information environment, suggesting that the SSM adds complementary value to these banks’ credibility. The intervention by a more independent supervisor that considers decisions from a European level rather than from a national point of view, however, has a negative effect for banks that were previously exposed to supervisors with strong influence into their business activities.

Author

• Melanie Demirtas, Frankfurt School of Finance & Management gGMBH