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Regulatory Changes and the Cost of Capital for Banks
In response to the financial crisis nearly a decade ago, a number of regulations were passed to improve the safety and soundness of the financial system. In this post and our related staff report, we provide a new perspective on the effect of these regulations by estimating the cost of capital for banks over the past two decades. We find that, while banks? cost of capital soared during the financial crisis, after the passage of the Dodd-Frank Act (DFA), banks experienced a greater decrease in their cost of capital than nonbanks and nonbank financial intermediaries (NBFI).
AUTHORS: Brandon Zborowski; Van Tassel, Peter; Kovner, Anna
Is There Too Much Business Debt?
By many measures, nonfinancial corporate debt has been increasing as a share of GDP and assets since 2010. As the May Federal Reserve Financial Stability Report explained, high business debt can be a financial stability risk because heavily indebted corporations may need to cut back spending more sharply when shocks occur. Our bloggers review measures of corporate leverage in the United States and find that, although corporate debt has soared, concerns about debt growth are mitigated in part by higher corporate cash flows.
AUTHORS: Brandon Zborowski; Kovner, Anna