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Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences

Author

Listed:
  • Adrien Alvero
  • Mr. Sakai Ando
  • Kairong Xiao

Abstract

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.

Suggested Citation

  • Adrien Alvero & Mr. Sakai Ando & Kairong Xiao, 2022. "Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences," IMF Working Papers 2022/041, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2022/041
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    Cited by:

    1. Darik Cruz & Miguel Vicens Feliberty, 2023. "The Cost of Dodd-Frank Act for Commercial Banks," International Journal of Economics and Financial Issues, Econjournals, vol. 13(5), pages 15-20, September.

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