Systematically Important Banks and Increased Capital Requirements in the Dodd-Frank Era

Abstract

This paper analyzes the effects of new capital requirements for systematically important financial institutions proposed by the Federal Reserve on September 8, 2014. Results from an event study indicate this announcement led to lower abnormal initial stock returns for systemically important financial firms that then reverse and dissipate after three days. Further, findings suggest that the announcement of the proposed rule change had no impact on key interest series. Overall, the results are consistent with an initial overreaction and subsequent market correction to the announcement of the proposed regulation by equity market investors.

Keywords: Systematic Risk, Capital Requirements, Financial Regulation, Dodd-Frank

JEL Classification: G18, G28, G21