The Macroeconomic Effects of Bank Regulation: New Evidence from a High-Frequency Approach

Thomas Drechsel and Ko Miura

No 21371, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Bank regulation supports financial stability, but might constrain economic activity. This paper estimates the macroeconomic effects of bank regulation using a high-frequency identification approach. We measure market surprises in a bank stock price index during a narrow time window around Federal Reserve speeches that discuss the US banking system and its regulation. We then develop a sign restriction procedure to elicit the variation in these market surprises that can be interpreted as news about bank regulation. News that bank regulation will be tighter than expected mitigates risk in the banking sector, but reduces economic activity by increasing banks' funding costs and tightening loan supply. A 10 basis point regulation-induced peak reduction in bank risk premiums is accompanied by a 15 basis point peak increase in the unemployment rate. Compared to previous studies, these magnitudes suggest a relatively high macroeconomic cost of tightening bank regulation, at least in the short run.

Keywords: Federal Reserve; Bank regulation; Macroprudential policy; High-frequency identification; Sign restrictions (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 E58 G28 (search for similar items in EconPapers)
Date: 2026-04
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Working Paper: The Macroeconomic Effects of Bank Regulation: New Evidence from a High-Frequency Approach (2026)
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