Evaluating regulatory reform: banks’ cost of capital and lending
Anna Kovner and
Peter Van Tassel ()
No 854, Staff Reports from Federal Reserve Bank of New York
We examine the eﬀects of regulatory changes on banks’ cost of capital and lending. Since the passage of the Dodd-Frank Act, the value-weighted CAPM cost of capital for banks has averaged 10.5 percent and declined by more than 4 percent on a within-ﬁrm basis relative to ﬁnancial crisis highs. This decrease was much greater for the largest banks subject to new regulation than for other banks and ﬁrms. Over a longer twenty-year horizon, we ﬁnd that changes in the systematic risk of bank equity have real economic consequences: increases in banks’ cost of capital are associated with tightening in credit supply and loan rates.
Keywords: cost of capital; beta; bank regulation; Dodd-Frank Act; banks (search for similar items in EconPapers)
JEL-codes: G12 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-cba
Note: Revised July 2020. Previous title: “Regulatory Changes and the Cost of Capital for Banks”
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