Regulatory Asset Thresholds and Acquisition Activity in the Banking Industry
43 Pages Posted: 3 Feb 2017 Last revised: 20 Jun 2017
Date Written: June 16, 2017
This paper examines how the announcement of new regulations that require significant compliance costs for banks above the $10 billion asset threshold imposed by the Dodd-Frank Act affects acquisition activity in the banking industry. We argue that the additional compliance costs increase the demand for acquisition activity by banks approaching and just above the threshold. We document that after the announcement of the additional regulations, these banks 1) become more likely to engage in an acquisition; and 2) pay larger deal premiums for these acquisitions. Additionally, we find that the relative size of target banks increases for acquisitions made by banks right around the threshold after the announcement of the regulations. These findings suggest that implementing regulations that require significant compliance costs only on banks above specific asset thresholds can contribute to consolidation in the banking industry.
Keywords: Banks, Regulation, Asset Thresholds, Acquisitions, Dodd-Frank
JEL Classification: G21, G28, G34, M40
Suggested Citation: Suggested Citation