Is there a Benefit from Reduced Regulation on Small Banks?
50 Pages Posted: 6 Jun 2019
Date Written: May 17, 2019
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: Suggested Citation