Assessing the impact of regulatory reforms on the market value of retail banks in the United Kingdom (UK), an event study methodology

This study examines the impact of two significant regulatory reforms, the Banking Reform Act (2013) and the Financial Services and Markets Act (2023), on the market value of the four largest retail banks in the UK. The research employs an event study methodology, a well-established approach in financial economics, to analyse the stock market reactions to key legislative events associated with the enactment of both acts. The study focuses on three critical stages in the legislative process: the third reading in the House of Commons, the third reading in the House of Lords and the Royal Assent. Daily stock price data from 2000 to 2023 is used to calculate abnormal returns, which are then analysed for statistical significance using the Wilcoxon signed-rank test. The findings reveal that the Banking Reform Act 2013, while not significantly impacting individual bank returns, had a collective negative effect on the stock prices of the four banks. This suggests that the market perceived the reforms as potentially reducing bank profitability due to increased regulatory burdens and structural changes. Conversely, the Financial Services and Markets Act 2023, enacted a decade later, showed a positive and significant effect on the collective stock returns of the banks. This research stresses the critical need for phased implementation of regulatory reforms, enabling policymakers to meticulously monitor market responses and make necessary adjustments. Furthermore, it stresses the importance of proactive compliance strategies for banks and other financial institutions, including comprehensive regulatory impact assessments as well as robust scenario planning, to effectively navigate dynamic regulatory environments. The study promotes a balanced regulatory framework that safeguards financial stability while simultaneously encouraging economic growth and innovation, recognizing the financial industry's central role. Importantly, our findings fill a significant gap in the existing literature by providing quantifiable measures of the market's reaction to these key legislative events.