The Impact of the Dodd-Frank Act on Small U.S. Banks

45 Pages Posted: 15 Jul 2019 Last revised: 2 Feb 2022

See all articles by Kuan Liu

Kuan Liu

University of Arkansas - Department of Finance

Date Written: November 15, 2019

Abstract

I develop and estimate an industry equilibrium model to quantify the impact of the Dodd-Frank Act on U.S. small banks. I find that Dodd-Frank's impact is two-sided. While a heightened regulatory burden depresses profitability of all banks in the short run, there is an associated positive selection effect in the long run; prolonged absence of entry and endogenous size expansion via investment makes surviving banks 41.7% more profitable, leading to less exit. Meanwhile, loan prices rise and total small bank lending drops by 13.6%. The most profound impact on small banks comes from increases in entry barriers.

Keywords: small banks, entry barriers, entry and exit, structural estimation

JEL Classification: G21, G28, L11

Suggested Citation

Liu, Kuan, The Impact of the Dodd-Frank Act on Small U.S. Banks (November 15, 2019). Available at SSRN: https://ssrn.com/abstract=3419586 or http://dx.doi.org/10.2139/ssrn.3419586

Kuan Liu (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

HOME PAGE: http://sites.google.com/view/kliu

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