Knowledge that Transforms

This paper examines whether monetary policy responsibilities alter the central bank's role as a bank supervisor. The analysis focuses on the United States, where the Federal Reserve System shares supervisory duties with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. Among the three institutions, the Fed is the only one responsible for monetary policy. Hence, the Fed's supervisory behavior—as captured by formal actions—is compared with the behavior of the other two agencies. The results suggest that the Fed's monetary policy responsibilities do alter its bank supervisory behavior: indicators of monetary policy affect the supervisory actions of the Fed, but do not affect the actions of the other two agencies.

We analyze the impact of takeover threats on long-term relationships between the target owners and other stakeholders. In the absence of takeovers, stakeholders' bargaining power increases their incentive to invest but reduces the owners' incentive to invest. The threat of a takeover that would transfer value from the stakeholders reduces their ex ante investment. However, the stakeholders may appropriate ex post some value created by a takeover. This can prevent some value-enhancing takeovers. We examine extensions to the disciplinary role of takeovers, takeover defense mechanisms, and trade credit, and discuss empirical predictions.