Staff Reports
Evaluating Regulatory Reform: Banks’ Cost of Capital and Lending
Previous title: “Regulatory Changes and the Cost of Capital for Banks”
Number 854
June 2018 Revised May 2019

JEL classification: G12, G21, G28

Authors: Anna Kovner and Peter Van Tassel

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 relative to nonbanks on a within-firm basis. This decrease was much greater for larger banks subject to new regulation than for smaller banks. 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.

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AUTHOR DISCLOSURE STATEMENT(S)
Anna Kovner
The author, Anna Kovner, declares that she has no relevant or material financial interests that relate to the research described in this paper.

Peter Van Tassel
I, Peter Van Tassel, have no relevant or material financial interests that relate to the research described in this paper.