Submission Date

4-28-2025

Document Type

Paper

Department

Business & Economics

Adviser

Elisheva Stern

Committee Member

Jennifer VanGilder

Committee Member

Shawn Caven

Department Chair

Jennifer VanGilder

Project Description

After the Great Recession of 2008, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the Obama Administration in 2010 with hopes to protect citizens against economic downturn spurred by poor banking behaviors. This act of federal financial oversight was unprecedented, and its magnitude and level of strictness caused banks to see an increase in costs, such as increases in personnel numbers and non-interest earning reserve requirements. This research analyzes how banks, specifically community banks, paid for these increased costs by focusing on the net interest margin (NIM). The NIM is a prominent profitability ratio for banking institutions, and it measures the difference between a bank’s net interest income and its net interest expenses as a percentage of average assets. The results of this analysis show that as the regulatory environment tightens, banks tend to widen their NIM, likely to fund higher compliance costs while maintaining stable profit levels. This research also analyzes what this increase in NIM means for consumers; specifically, a widening of the NIM means that consumers are likely paying higher prices to borrow money or are receiving lower payments for lending money. Ultimately, it is concluded that regulation does affect banks’ NIMs, and consumers feel the spillover effects of strict federal regulation.

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