The Japanese banking crisis provides a natural experiment to test whether a loan supply shock can affect real economic activity. Because the shock was external to U.S. credit markets, yet connected through the Japanese bank penetration of U.S. markets, this event allows us to identify an exogenous loan supply shock and ultimately link that shock to construction activity in U.S. commercial real estate markets. We exploit the variation across geographically distinct commercial real estate markets to establish conclusively that loan supply shocks emanating from Japan had real effects on economic activity in the United States.

We examine the stock market reaction to announcements of formal supervisory actions. We find that the variation in the quality and timeliness of disclosure by U.S. banks explains much of the variation in the market's reactions. We also find that these announcements can cause spillover effects. However, rather than representing contagion, these spillover effects are consistent with enhanced transparency. Only banks in the same region as the announcing bank, with similar exposures, are affected. Thus, enhanced disclosure can improve the allocation of resources in the banking system. Journal of Economic Literature Classification Numbers: G21, G28.