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Dodd–Frank's impact on community‐bank investment models: A Bayesian structural time series analysis

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  • Yen Teik Lee
  • Gary L. Caton
  • Edward N. Gamble
  • Francis Kerins

Abstract

We use Bayesian structural time series (BSTS) methodology to test whether the Wall Street Reform and Consumer Protection Act of 2010 (DF) caused changes in community bank business models. The BSTS methodology uses the pre‐DF period to create synthetic counterfactuals for community‐bank dependent variables of interest. In the post‐DF period, the counterfactuals become predictions of the dependent variables had DF not been enacted. Comparing post‐DF predicted versus actual dependent variables allows us to estimate the causal impact of DF on these variables of interest. We find that relative to assets, community banks significantly reduce their lending activities and significantly increase investment in securities and excess reserves.

Suggested Citation

  • Yen Teik Lee & Gary L. Caton & Edward N. Gamble & Francis Kerins, 2023. "Dodd–Frank's impact on community‐bank investment models: A Bayesian structural time series analysis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 537-554, March.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:1:p:537-554
    DOI: 10.1111/acfi.13016
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    References listed on IDEAS

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