TY  - UNPD
A1  - Granja, João
A1  - Leuz, Christian
T1  - The death of a regulator: strict supervision, bank lending,
and business activity
T2  - LawFin working paper ; No. 4
N2  - An important question in banking is how strict supervision affects bank lending and in turn local business activity. Supervisors forcing banks to recognize losses could choke off lending and amplify local economic woes. But stricter supervision could also change how banks assess and manage loans. Estimating such effects is challenging. We exploit the extinction of the thrift regulator (OTS) to 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. Next, we analyze the ensuing lending effects. We show that former OTS banks increase small business lending by roughly 10 percent. This increase is concentrated in well-capitalized banks, those more affected by the new regime, and cannot be fully explained by a reallocation from mortgage to small business lending after the crisis. These findings suggest that stricter supervision operates not only through capital but can also correct deficiencies in bank management and lending practices, leading to more lending and a reallocation of loans.
T3  - LawFin Working Paper - 4 
KW  - Bank regulation
KW  - Enforcement
KW  - Loan losses
KW  - Aggregate outcomes
KW  - Prudential oversight
KW  - Business lending
KW  - Entry and exit
Y1  - 2020
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/61644
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-616442
IS  - July 2020
EP  - 74
PB  - Center for Advanced Studies on the Foundations of Law and Finance, House of Finance, Goethe University
CY  - Frankfurt am Main
ER  -