Lending and risk controls for BHCs after the Dodd–Frank act

Degl'Innocenti, Marta, Zhou, Si and Zhou, Yue (2023) Lending and risk controls for BHCs after the Dodd–Frank act. Journal of Financial Research. (doi:10.1111/jfir.12363).

Record type: Article

Abstract

We investigate the impact of the Dodd–Frank Act (DFA) on the credit risk behavior of complex bank holding companies (BHCs). Specifically, we assess the effectiveness of the DFA in reducing the credit riskiness of complex banks. Consistent with the moral hazard hypothesis, we find that complex BHCs affected by the DFA increase their credit risk. We argue that possible explanations are that BHCs decreased their lending portfolio quality, loan monitoring, and strength and independence of the risk management function after the DFA. The results are robust to endogeneity concerns, different sample selection criteria, various model and treatment specifications, and placebo tests.

This record has no associated files available for download.

More information

Accepted/In Press date: 19 September 2023

e-pub ahead of print date: 2 November 2023

Published date: 21 November 2023

Additional Information: Funding Information: We thank Murali Jagannathan (the coeditor) and two anonymous referees for valuable comments and suggestions. We also thank Andrew Ellul, Daniel Mayorga Serna and Nikolaos Antonios Kalyvas. Comments from seminar participants at University of Southampton and Shanghai University are also appreciated. Marta Degl'Innocenti acknowledges financial support from the Italian Ministry of University and Research (MUR) under the Department of Excellence 2023‐2027 grant agreement “Centre of Excellence in Economics and Data Science” (CEEDS). We are solely responsible for all remaining errors and omissions. All authors contributed equally to this paper. Publisher Copyright: © 2023 The Southern Finance Association and the Southwestern Finance Association.