| Formal enforcement actions are the only publicly disclosed information by bank regulators regarding serious bank problems. This is the first study to examine market reaction to formal enforcement actions since the change in bank regulation in 1991. This research evaluated the equity market impact of 393 formal enforcement actions issued by the OTS, OCC, FDIC, and FRB during the period 1991 through 1996. The empirical results support the hypothesis that bank regulators provide information to the market through public disclosure of formal enforcement actions. The market response was strongest for the institutions regulated by the OTS and to a lesser degree for the institutions regulated by the FDIC. No significant market reaction was found for OCC and FRB regulated institutions. Generally, market reaction declined during the sample period and disappeared by 1994. |