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Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences
Author:
Adrien Alvero
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Mr. Sakai Ando
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https://orcid.org/0000-0003-2785-4375
, and
Kairong Xiao
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 041
Language:
English
Publication Date:
25 Feb 2022
DOI:
https://doi.org/10.5089/9798400202346.001
ISBN:
9798400202346
ISSN:
1018-5941
Pages:
89
Keywords:
Bank regulation; regulatory costs; the Dodd-Frank Act; bunching; regulatory cost; size distribution; bank data; costs from revealed preference; bank value; Bank regulation; Productivity; Shadow banking; Total factor productivity; Cost-benefit analysis; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We show that distortion in the size distribution of banks around regulatory thresholds can be used to identify costs of bank regulation. We build a structural model in which banks can strategically bunch their assets below regulatory thresholds to avoid regulations. The resulting distortion in the size distribution of banks reveals the magnitude of regulatory costs. Using U.S. bank data, we estimate the regulatory costs imposed by the Dodd-Frank Act. Although the estimated regulatory costs are substantial, they are significatnly lower than those in self-reported estimates by banks.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund