Review of Financial Studies Vol. 36 No. 6 2023
Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences
Abstract
We show that distortion in the size distribution of banks around regulatory thresholds can be used to identify costs of bank regulation. We build a structural model in which banks can strategically bunch their assets below regulatory thresholds to avoid regulations. The resultant distortion in the size distribution of banks reveals the magnitude of regulatory costs. Using U.S. bank data, we estimate the regulatory costs imposed by the Dodd-Frank Act. Although the estimated regulatory costs are substantial, they are significantly lower than banks’ self-reported estimates.
- DOI
- 10.1093/rfs/hhac089
- Volume
- 36
- Issue
- 6
- Pages
- 2224-2273
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref