TY - UNPD A1 - Granja, João A1 - Leuz, Christian T1 - The death of a regulator : strict supervision, bank lending and business activity T2 - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 610 N2 - 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 well capitalized 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. T3 - CFS working paper series - 610 KW - Bank regulation KW - Enforcement KW - Loan Losses KW - Aggregate outcomes KW - Prudential oversight KW - Business lending KW - Entry and exit Y1 - 2018 UR - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/47974 UR - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-479749 UR - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3289934 IS - October 2017 PB - Center for Financial Studies CY - Frankfurt, M. ER -