The Impact of the Dodd-Frank Act on Small Business

45 Pages Posted: 15 Aug 2019

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Rebel A. Cole

Florida Atlantic University

John V. Duca

Oberlin College; Federal Reserve Banks - Federal Reserve Bank of Dallas

Date Written: February 28, 2019

Abstract

There are concerns that the Dodd-Frank Act (DFA) has impeded small business lending. By increasing the fixed regulatory compliance requirements needed to make business loans and operate a bank, the DFA disproportionately reduced the incentives for all banks to make very modest loans and reduced the viability of small banks, whose small-business share of C&I loans is generally much higher than that of larger banks. Despite an economic recovery, the small loan share of C&I loans at large banks and banks with $300 or more million in assets has fallen plunged 9 percentage points since the DFA was passed in 2010, with the magnitude of the decline twice as large at small banks. Controlling for cyclical effects and bank size, we find that 8 to 9 percentage points of these declines in the small loan share of C&I loans are statistically attributed to the change in regulatory regime. Examining Federal Reserve survey data, we find evidence that the DFA prompted a relative tightening of bank credit standards on C&I loans to small versus large firms, consistent with the DFA inducing a decline in small business lending through loan supply effects. We also empirically model the pace of business formation, finding that it had downshifted during the initial period of the DFA before efforts to provide regulatory relief to smaller banks via modifying implementation rules.

Keywords: small business lending, business formation, regulation, Dodd-Frank, secular stagnation

JEL Classification: E40, E50, G01, G21, G28

Suggested Citation

Bordo, Michael D. and Cole, Rebel A. and Duca, John V., The Impact of the Dodd-Frank Act on Small Business (February 28, 2019). Available at SSRN: https://ssrn.com/abstract=3436356

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

John V. Duca

Oberlin College

Oberlin, OH 44074
United States

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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