Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences
37 Pages Posted: 24 Jan 2021
Date Written: December 3, 2020
We estimate regulatory costs borne by financial institutions through a revealed preference approach. To avoid regulation, financial institutions endogenously downsize their assets to stay below regulatory thresholds. We propose a structural model of this bunching behavior and estimate it using the U.S. bank data before and after the Dodd-Frank Act of 2010. The estimated regulatory costs, while substantial in magnitude, are significantly lower than those in self-reported surveys by financial institutions.
Keywords: regulatory costs, the Dodd-Frank Act
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