Rolling Back Dodd-Frank: Investors’ and Banks’ Responses to Financial Market Deregulation

Studying key events related to the repeal of Dodd-Frank policies we find that banking deregulation can create shareholder value. We document positive stock returns for banks around these events. The returns are larger for small banks with assets below $10 billion suggesting that their shareholders expect greater benefits. Furthermore, we observe improvements in capital strength and accounting performance, an expansion in external financing and lending activity, and positive asset growth for only small banks. The eased regulation for large banks with assets above $50 billion likely made small banks more willing to grow again and cross the $10 billion threshold.