Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/120832 
Year of Publication: 
2014
Series/Report no.: 
Staff Report No. 679
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
This study provides an empirical analysis of the impact of Wisconsin and Ohio pension cut legislation on values of banks operating in Wisconsin and Ohio, banks operating in other states in which pension cut legislation was being considered as Wisconsin and Ohio went through its legislative process, and all publicly traded U.S. banks. We find that banks doing business in Wisconsin and Ohio experience positive (negative) stock price reactions to announcements that indicate an increased (a decreased) probability of pension cut legislation. The stock price reactions are positively related to the extent to which banks operate in Wisconsin and Ohio. Stock price reactions are rarely evident for banks in the other thirteen states that were considering pension cut legislation during the period of analysis. We also find municipal bond spreads tighten and bank credit supply increases with pension cut legislation. Overall, the findings suggest states' budget cuts affect bank values and credit supply through their municipal bond holdings.
Subjects: 
financial institutions
municipal debt
public pensions
JEL: 
G11
G21
H72
H75
Document Type: 
Working Paper

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