Seminar (Dept. of Finance)

Title: Size-Based Regulation and Bank Fragility: Evidence from the Wells Fargo Asset Cap

Speaker: Tianyue Ruan, Assistant Professor, NUS Business School, National University of Singapore

Time: 10:00-11:30, Oct 25th, 2024 (Friday)

Venue: Online Meeting

Language: English/Chinese

ABSTRACT:

We argue that heightened regulation on large banks contributed to the rise in fragility of smaller banks revealed by the 2023 regional bank crisis. In 2018, regula- tors restricted Wells Fargo from growing beyond $1.95 trillion in assets. This asset cap forced Wells Fargo to give up large uninsured deposits. We find that smaller, less reg- ulated banks more geographically proximate to Wells Fargo experienced an influx of flighty uninsured deposits, particularly during the COVID-19 period. In turn, these banks experienced higher deposit outflows once monetary tightening commenced and saw stock prices plummeted during the 2023 banking stress.