Size-Based Regulation and Bank Fragility: Evidence from the Wells Fargo Asset Cap

69 Pages Posted: 21 Feb 2024 Last revised: 30 Oct 2024

See all articles by Tianyue Ruan

Tianyue Ruan

National University of Singapore (NUS) - Department of Finance

Siddharth Vij

University of Georgia Terry College of Business

Date Written: February 21, 2024

Abstract

We argue that heightened regulation on large banks contributed to the rise in fragility of smaller banks revealed by the 2023 regional bank crisis. In 2018, regulators restricted Wells Fargo, the third largest U.S. bank, from growing its total assets. We estimate this asset cap led Wells Fargo to give up deposits amounting to 2.2% of aggregate bank deposits. These deposits, primarily uninsured, were reallocated to smaller, less regulated banks geographically proximate to Wells Fargo. In turn, these banks experienced higher deposit outflows once monetary tightening commenced and saw their stock prices plummet during the 2023 stress.

Keywords: Too-Big-to-Fail, Banking Fragility, Wells Fargo, Asset Cap, Regional Bank Crisis, Monetary Tightening

JEL Classification: G01, G21, G28, G32, E44, E58

Suggested Citation

Ruan, Tianyue and Vij, Siddharth, Size-Based Regulation and Bank Fragility: Evidence from the Wells Fargo Asset Cap (February 21, 2024). Available at SSRN: https://ssrn.com/abstract=4728570 or http://dx.doi.org/10.2139/ssrn.4728570

Tianyue Ruan

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://https://truan.github.io/

Siddharth Vij (Contact Author)

University of Georgia Terry College of Business ( email )

620 S. Lumpkin Street
Amos Hall, B324
Athens, GA 30602
United States

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