Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210706 
Year of Publication: 
2018
Series/Report no.: 
Staff Report No. 854
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We estimate the cost of capital for the banking industry and find that while the cost of capital soared for banks in the financial crisis, after the passage of the Dodd-Frank Act, the value-weighted cost of capital for banks fell differentially more than did the cost of capital for nonbanks. The very largest banks drive the decline in expected returns. Over a longer time horizon, the cost of capital for banks may be differentially higher than that for nonbanks relative to the time period before the Graham-Leach-Bliley Act was passed, although in some measures the difference is negative and/or cannot be distinguished from zero. We find some evidence that stress testing has lowered the cost of capital for the largest stress-tested banks, although not for those added more recently to stress testing.
Subjects: 
cost of capital
beta
bank regulation
Dodd-Frank
banks
JEL: 
G12
G21
G28
Document Type: 
Working Paper

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