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Regulatory Changes and the Cost of Capital for Banks

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Abstract

In response to the financial crisis nearly a decade ago, a number of regulations were passed to improve the safety and soundness of the financial system. In this post and our related staff report, we provide a new perspective on the effect of these regulations by estimating the cost of capital for banks over the past two decades. We find that, while banks? cost of capital soared during the financial crisis, after the passage of the Dodd-Frank Act (DFA), banks experienced a greater decrease in their cost of capital than nonbanks and nonbank financial intermediaries (NBFI).

Suggested Citation

  • Anna Kovner & Peter Van Tassel & Brandon Zborowski, 2018. "Regulatory Changes and the Cost of Capital for Banks," Liberty Street Economics 20181001a, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:87278
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    File URL: https://libertystreeteconomics.newyorkfed.org/2018/10/regulatory-changes-and-the-cost-of-capital-for-banks.html
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    Cited by:

    1. Nguyen, Thach Vu Hong & Ahmed, Shamim & Chevapatrakul, Thanaset & Onali, Enrico, 2020. "Do stress tests affect bank liquidity creation?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    2. Richard K. Crump & João A. C. Santos, 2018. "Review of New York Fed studies on the effects of post-crisis banking reforms," Economic Policy Review, Federal Reserve Bank of New York, issue 24-2, pages 71-90.
    3. Satish Thosar & Bradley Schwandt, 2019. "Has ‘Too Big To Fail’ Been Solved? A Longitudinal Analysis of Major U.S. Banks," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(1), pages 1-14, February.

    More about this item

    Keywords

    Bank Regulation; Banks; Beta; Cost of Capital; Dodd Frank;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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