XXVI Edition

14-15-16 December 2017"

The Impact of the Dodd-Frank Act on Small Business Lending

Duca John, Federal Reserve Bank of Dallas
Bordo Michael, Rutgers University National Bureau of Economic Research Hoover Institution, Stanford University

There are concerns that the Dodd-Frank Act (DFA) has impeded small business lending. By increasing the fixed regulatory compliance of making business loans and of operating a bank, DFA has disproportionately reduced the incentives of all banks to make very small sized loans and reduced the viability of small sized banks, whose small business share of C&I loans is generally much higher than that of larger banks. Indeed, despite an economic recovery from the Great Recession, the aggregate share of C&I loans made to small businesses has fallen by 11 percentage points since DFA was passed in 2010, twice as much as the 5 percentage point decline in the seven years preceding DFA, which also reflected the typical pattern of reduced small business loan share during economic downturns as well as the impact of on-going consolidation of the banking industry. Controlling for both cyclical effects and the pre-DFA underlying downtrend, we find that the small business share of C&I loans has fallen by an additional 11 percentage points since 2010.

Area: Financial Regulation and Supervision

Keywords: money and banking, economic policy uncertainty, business cycles

Paper file

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