Impact of the Dodd-Frank Act on Systemic Risk: A Counterfactual Analysis

42 Pages Posted: 3 Mar 2018 Last revised: 24 Mar 2020

See all articles by Qiubin Huang

Qiubin Huang

University of Science and Technology Beijing - Donlinks School of Economics and Management

Jakob de Haan

University of Groningen - Faculty of Economics and Business; De Nederlandsche Bank; CESifo (Center for Economic Studies and Ifo Institute)

Bert Scholtens

University of Groningen - Department of Finance & Accounting

Date Written: January 15, 2018

Abstract

This paper introduces a two-step strategy, the synthetic control method combined with the difference-in-differences method, to evaluate the effectiveness of the Dodd-Frank Act (DFA). We find no evidence from our counterfactual analysis in support of the DFA reducing systemic risk in the US banking system. Our results suggest that endogenous risk persistence is the main driver for the decrease in systemic risk in the post-DFA period. Additional analyses regarding the predictive power of the synthetic control method, endogeneity concerns and anticipation effects support the robustness of our findings.

Keywords: Dodd-Frank Act, systemic risk, synthetic control, difference-in-differences

JEL Classification: C54, G21, G28

Suggested Citation

Huang, Qiubin and de Haan, Jakob and Scholtens, Bert, Impact of the Dodd-Frank Act on Systemic Risk: A Counterfactual Analysis (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=3019977 or http://dx.doi.org/10.2139/ssrn.3019977

Qiubin Huang (Contact Author)

University of Science and Technology Beijing - Donlinks School of Economics and Management

30 Xueyuan Road, Haidian District
Beijing, 100083
China

Jakob De Haan

University of Groningen - Faculty of Economics and Business ( email )

PO Box 800
Groningen, 9700 AV
Netherlands
+31 0 50 3633706 (Fax)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bert Scholtens

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

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