Ilya Beylin (Seton Hall Law School) has posted Regulatory Burden or Market Reconfiguration? What Post-Dodd-Frank Swap Data Shows on SSRN. Here is the abstract:
The G-20 nations committed to swap market reforms following the financial crisis of 2007-08. In the U.S., these reforms were enacted under the Dodd-Frank Act. The interventions were deep and comprehensive, and many commentators raised concerns with their costs. A natural question is whether the reforms deter parties from using swaps, which among other things are a socially useful tool for risk management. The downfall of Silicon Valley Bank due to its failure to manage interest rate risk only makes this question more timely. This Article uses Federal Reserve data from 2000 to 2025 to study the use of derivatives by banking firms.
Depending on the perspective, evidence can be found to support either that regulation depressed swap usage or that regulation did not interfere with the use of swaps to manage risk. Looking across asset classes, those that were most affected by regulation (interest rate and credit default swaps) experience substantial declines while those exempt from some regulation (foreign exchange and equity swaps) experience substantial growth. Looking at the use of swaps relative to other instruments (futures, options and forwards), before and after the onset of swap regulation, however, shows that hedging with swaps became relatively more popular after the onset of regulation. Delving deeper into the cross-instrument perspective, comparing smaller institutions that were exempt from some of the most onerous obligations to larger, non-exempt institutions, the evidence is ambiguous as to whether the treated group (i.e., non-exempt institutions) reduced using swaps relative to other instruments in the post-regulatory period. The paper shows how statistics can be used rhetorically to further or oppose the regulatory project, and that a conclusive assessment of how Dodd-Frank regulation impacted swap usage is elusive.
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