Impact of the Dodd-Frank Act on Systemic Risk : A Counterfactual Analysis

This paper introduces a two-step strategy, the synthetic control method combined with the difference-in-differences method, to evaluate the effectiveness of the Dodd-Frank Act (DFA). We find no evidence from our counterfactual analysis in support of the DFA reducing systemic risk in the US banking system. Our results suggest that endogenous risk persistence is the main driver for the decrease in systemic risk in the post-DFA period. Additional analyses regarding the predictive power of the synthetic control method, endogeneity concerns and anticipation effects support the robustness of our findings