We examine whether an adverse event at one bank generates externalities for
the banking industry, and assess whether the population of commercial bank
s is homogeneous. We find dividend reductions are negative events for both
announcing money center and regional banks, but only reductions at money ce
nter banks have negative, contagion-type externalities. Dividend reductions
at regional banks have positive competitive effects on geographic rivals.
Regulatory enforcement actions induce negative valuation effects that are i
diosyncratic to targeted banks, but actions against regional banks generate
positive competitive effects on geographic rivals. Our evidence suggests t
hat regional banking markets are not contestable. (C) 1999 Elsevier Science
S.A. All rights reserved. JEL classification: G21; G28.