Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/187485 
Title: 

The death of a regulator: Strict supervision, bank lending and business activity

The document was removed on behalf of the author(s)/ the editor(s).

Year of Publication: 
2018
Series/Report no.: 
CFS Working Paper Series No. 610
Publisher: 
Goethe University Frankfurt, Center for Financial Studies (CFS), Frankfurt a. M.
Abstract: 
An important question in banking is how strict supervision affects bank lending and in turn local business activity. Forcing banks to recognize losses could choke off lending and amplify local economic woes, especially after financial crises. But stricter supervision could also lead to changes in how banks assess loans and manage their loan portfolios. Estimating such effects is challenging. We exploit the extinction of the thrift regulator (OTS) - a large change in prudential supervision, affecting ten percent of all U.S. depository institutions. Using this event, we analyze economic links between strict supervision, bank lending and business activity. We first show that the OTS replacement indeed resulted in stricter supervision of former OTS banks. We then analyze the lending effects of this regulatory change and show that former OTS banks increase small business lending by approximately 10 percent. This increase stems primarily from wellcapitalized banks and those more affected by the new regime. These findings suggest that stricter supervision operates not only through capital but can also overcome frictions in bank management, leading to more lending and a reallocation of loans. Consistent with the latter, we find increases in business entry and exit in counties with greater expose to OTS banks.
Subjects: 
Bank regulation
Enforcement
Loan Losses
Aggregate outcomes
Prudential oversight
Business lending
Entry and exit
JEL: 
E44
E51
G21
G28
G31
G38
K22
K23
L51
M41
M48
Document Type: 
Working Paper

Files in This Item:
The document was removed on behalf of the author(s)/ the editor(s) on: December 18, 2018


Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.