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

By Adrien Alvero, Sakai Ando, Kairong Xiao

February 25, 2022

Preview Citation

Format: Chicago

Adrien Alvero, Sakai Ando, and Kairong Xiao. Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences, (USA: International Monetary Fund, 2022) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Bank regulation, Cost-benefit analysis, Financial regulation and supervision, Financial services, Production, Productivity, Shadow banking, Tax policy, Total factor productivity

Keywords: Bank data, Bank regulation, Bank regulation, Bank value, Bunching, Cost-benefit analysis, Costs from revealed preference, Global, Productivity, Regulatory cost, Regulatory costs, Shadow banking, Size distribution, The Dodd-Frank Act, Total factor productivity

Publication Details

Pages:

89
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/041
Stock No:

WPIEA2022041
ISBN:

9798400202346
ISSN:

1018-5941

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