Speaker: Thomas Drechsel
Co-authors: Ko Miura
Affiliation: University of Maryland
Date and time: Wednesday, August 20, 2025 14:30 (Santiago, GMT-04:00)
Location:

• Auditorio at the Central Bank of Chile, Morandé 115, second floor.
• Online meeting

Registration: seminarios@bcentral.cl

Abstract: Bank regulation supports financial stability, but might constrain economic activity. This paper estimates the macroeconomic consequences of bank regulation using a high-frequency identification approach. We measure market surprises in a bank stock price index during a narrow time window around Federal Reserve speeches that discuss the US banking system and its regulation. We then use two alternative procedures, based on sign restrictions and a narrative strategy, to elicit the variation in these market surprises that can plausibly be interpreted as news about bank regulation. News about bank regulation mitigates risk in the banking sector, but reduces economic activity by increasing banks’ funding costs and reducing loan supply. A 10 basis point regulation-induced reduction in bank risk premiums is accompanied by a 27.5 basis point peak increase in the unemployment rate, suggesting a high macroeconomic cost of bank regulation relative to previous studies.