Is there a Benefit from Reduced Regulation on Small Banks?

50 Pages Posted: 6 Jun 2019

See all articles by Abhishek Srivastav

Abhishek Srivastav

University of Edinburgh - Business School

Francesco Vallascas

Durham University

Date Written: May 17, 2019

Abstract

Beginning June 2015, several U.S. Bank Holding Companies (BHCs) have been newly classified as small banks by regulators, thus benefiting from a friendlier regulatory environment. We exploit this decrease in regulation in a difference-in-differences setting to show that less regulation on small BHCs boosts small business lending of the affiliated commercial banks without affecting risk-taking or transparency in these subsidiaries. The increase in small business lending is stronger when the parent BHC is farther from the new regulatory asset threshold that identifies small banks. Further, the regulatory relief has positive implications for the funding opportunities of affiliated commercial banks and has a real impact on the local economy. Overall, we show that the effects of the regulatory relief are in line with its desired objectives.

Keywords: Small Banks, Regulation, Small Business Lending, Local Economy

JEL Classification: G21, G28

Suggested Citation

Srivastav, Abhishek and Vallascas, Francesco, Is there a Benefit from Reduced Regulation on Small Banks? (May 17, 2019). Available at SSRN: https://ssrn.com/abstract=3389946 or http://dx.doi.org/10.2139/ssrn.3389946

Abhishek Srivastav

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

Francesco Vallascas (Contact Author)

Durham University ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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