Disproportionate costs of uncertainty: Small bank hedging and Dodd-Frank

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


Uncertainty in banking regulation may impose widespread economic costs by increasing financial constraints on credit availability. Four years of Dodd-Frank uncertainty over undecided risk weightings increased regulatory uncertainty for smaller banks, restricting “vanilla” interest rate hedging activities. This paper uses newly reported mortgage banking data as an identification strategy and finds that when costs of uncertainty are removed, small banks hedge 97%–120% more interest rate risk while mortgage securitization income increases by 65.2% compared to large banks. These findings support the need for tailored regulations that consider the higher costs of regulatory uncertainty for smaller banks.

Original languageEnglish (US)
Pages (from-to)686-709
Number of pages24
JournalJournal of Futures Markets
Issue number5
StatePublished - May 2021
Externally publishedYes


  • Dodd-Frank
  • banking regulation
  • community banks
  • costs of uncertainty
  • hedging
  • interest rate derivatives
  • interest rate locks
  • interest rate swaps
  • mortgages held for sale
  • risk management

ASJC Scopus subject areas

  • Accounting
  • General Business, Management and Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Disproportionate costs of uncertainty: Small bank hedging and Dodd-Frank'. Together they form a unique fingerprint.

Cite this