Wealth and risk implications of the Dodd-Frank Act on the U.S. financial intermediaries |
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| Institution: | 1. Division of Economic and Risk Analysis, United States Securities and Exchange Commission, 100 F St NE, Washington, DC 20549, United States\n;2. Department of Finance and Economics, Rutgers Business School, Rutgers University, 100 Rockafeller Road, Piscataway, NJ 08854, United States\n;1. Booth School of Business, University of Chicago, 5807 S. Woodlawn Ave., Chicago, IL 60637, United States;2. MIT Sloan School of Management, 100 Main St., Cambridge, MA 02142, United States;1. Motu Economic and Public Policy Research, New Zealand;2. U.S. Commodity Futures Trading Commission, United States;3. MIT Sloan School of Management and NBER 100 Main Street E62-623, 02142, United States;1. Federal Reserve Board, 20th St and Constitution Ave NW, Washington, DC 20551, USA;2. Samuel Curtis Johnson Graduate School of Management, Cornell University, 447 Sage Hall, Ithaca, NY 14853, USA;3. University of Technology Sydney, Sydney, Australia;4. University of Delaware, Lerner College of Business and Economics, Department of Finance, 42 Amstel Avenue, Newark, DE 19716, USA |
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| Abstract: | We contribute to the current regulatory debate by examining the wealth and risk effects of the Dodd-Frank Act on U.S. financial institutions. We measure the effects of key legislative events of the Act by means of a multivariate regression model using the seemingly unrelated regression (SUR) framework. Our results indicate a mixed reaction by financial institutions during the various stages of the Act’s legislative process. Further tests reveal that any positive reactions are driven by small and/or low risk institutions, while negative ones are consistent across subsets; except for investment banks. We also find market risk increases for most financial institutions that are dominated by small and/or low risk firms. The cross-section results reveal that large institutions fare better than their smaller counterparts and that large investment banks gain value at the expense of others. Overall, the Dodd-Frank Act may have redistributed value among financial institutions, while not necessarily reducing the industry’s riskiness. |
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| Keywords: | Banks Financial institutions Dodd-Frank Act Event study SUR |
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