Surprised or Not Surprised? The Investors’ Reaction to the Comprehensive Assessment Preceding the Launch of the Banking Union

Did the Comprehensive Assessment (CA), preceding the Single Supervisory Mechanism's launch in Europe, achieve its aims of producing new valuable information for the market? We show that the CA achieved the goal of increasing transparency: investors were able to detect weak banks at the announcement of the procedure (23 October 2013), but gained full information on the amount of the capital shortfall only at the disclosure of results (26 October 2014). Furthermore, at the official launch of the SSM (4 November 2014), banks under direct ECB supervision registered a more negative market reaction with respect to banks maintaining their national supervisors. Using a control function regression model, including possible confounders and allowing for treatment effect heterogeneity, this negative reaction is confirmed. These findings suggest that, at least in the short run, investors penalized banks subject to direct ECB supervision, probably because of the fear of regulatory inconsistencies