Size-Based Regulation and Bank Fragility: Evidence from the Wells Fargo Asset Cap

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ID: 323542
2026
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Abstract
Abstract We argue that heightened regulation on large banks contributed to the rise in fragility of smaller banks revealed by the 2023 regional bank crisis. In 2018, regulators restricted Wells Fargo, the third largest U.S. bank, from growing its total assets. We estimate this asset cap led Wells Fargo to give up deposits amounting to 2.2% of aggregate bank deposits. These deposits, primarily uninsured, were reallocated to banks geographically proximate to Wells Fargo, including smaller, less regulated banks. In turn, these banks experienced higher deposit outflows once monetary tightening commenced and saw their stock prices plummet during the 2023 stress. (JEL G01, G21, G28, G32, E44, E58)
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Authors Tianyue Ruan, Siddharth Vij
Journal review of financial studies
Year 2026
DOI
10.1093/rfs/hhag071
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