Regulatory Stringency and Bank Consolidation: Evidence from a Text-Based Index

Abstract

The effects of regulatory scrutiny and merger oversight on U.S. bank consolidation are well understood in theory but difficult to study empirically due to the absence of a continuous and systematic measure of stringency. This paper constructs a text-based index of regulatory stringency from primary-source regulatory documents spanning 1995 to 2025, and extracts three discrete shock series—capturing legislative events, presidential transitions, and agency leadership turnover—to causally identify how regulatory regime changes transmit into bank behavior and industry structure. OLS estimates establish that regulatory tightening suppresses asset growth and deposit funding, compresses deal pricing and elongates closing timelines, and reduces market concentration, with effects substantially amplified at large institutions. Local projections reveal distinct timing dynamics across shock types: legislative and leadership tightening trigger anticipatory consolidation followed by durable asset contraction, while presidential transitions produce uncertainty-driven freezes that resolve as the incoming administration’s regulatory posture becomes legible.