Wealth and risk implications of the Dodd-Frank Act on the U.S. financial intermediaries

Andriosopoulos, K., Chan, Ka Kei, Dontis-Charitos, P. & Staikouras, S. (2016). Wealth and risk implications of the Dodd-Frank Act on the U.S. financial intermediaries. Journal of Financial Stability, doi: 10.1016/j.jfs.2016.09.006

Abstract

We contribute to the current regulatory debate by examining the wealth and risk effects of the Dodd-Frank Act on U.S. financial institutions. We measure the effects of key legislative events of the Act by means of a multivariate regression model using the seemingly unrelated regression (SUR) framework. Our results indicate a mixed reaction by financial institutions during the various stages of the Act's legislative process. Further tests reveal that any positive reactions are driven by small and/or low risk institutions, while negative ones are consistent across subsets; except for investment banks. We also find market risk increases for most financial institutions that are dominated by small and/or low risk firms. The cross-section results reveal that large institutions fare better than their smaller counterparts and that large investment banks gain value at the expense of others. Overall, the Dodd-Frank Act may have redistributed value among financial institutions, while not necessarily reducing the industry's riskiness.

Publication Type:	Article
Publisher Keywords:	Banks; Financial institutions; Dodd-Frank Act; Event study; SUR
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance