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

Adrien Alvero, Sakai Ando and Kairong Xiao

No 2022/041, IMF Working Papers from International Monetary Fund

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.

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 (search for similar items in EconPapers)
Pages: 89
Date: 2022-02-25
New Economics Papers: this item is included in nep-fdg and nep-reg
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