Data Brief: May 15, 2019
By: Kim Ruhl, Center for Research on the Wisconsin Economy
In response to the U.S. financial crisis of 2007–2008, the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (henceforth, the Dodd-Frank Act or just the Act) was enacted on July 21, 2010. This sweeping reform was meant to stabilize the financial system and prevent future crises. A major component of the Act was the increase in capital requirements and regulation of bank activity.
Several authors (Liu, 2019; McCord and Prescott, 2014; Peirce, Robinson, and Stratmann, 2014) have argued that the Act has increased regulatory costs for banks and that these costs are largely unrelated to bank size — for example, a bank may need to hire an additional full-time employee to manage regulatory compliance. These fixed costs would be a larger burden on small banks, impacting profitability and dampening entry of small banks.