Federal Reserve Bank of New York
Regulatory changes and the cost of capital for banks
We estimate the cost of capital for the banking industry and find that, while the cost of capital soared for banks during the financial crisis, after the passage of the Dodd–Frank Act, the value-weighted cost of capital fell differentially more for banks than for nonbanks. The very largest banks drive the decline in expected returns, with some evidence indicating that stress testing has lowered the cost of capital for the very largest stress-tested banks. Changes to banks' cost of capital have real economic consequences-we find that increases in banks' cost of capital are associated with tightening in credit supply.
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Anna Kovner & Peter Van Tassel, Regulatory changes and the cost of capital for banks, Federal Reserve Bank of New York, Staff Reports 854, 01 Jun 2018, revised 01 Oct 2018.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
Keywords: cost of capital; beta; bank regulation; Dodd-Frank Act; banks
This item with handle RePEc:fip:fednsr:854
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