Review of Financial Studies Vol. 34 No. 6 2021
The Effect of Bank Supervision and Examination on Risk Taking: Evidence from a Natural Experiment
open access
Abstract
We exploit an exogenous reduction in bank supervision and examination to demonstrate a causal effect of supervisory oversight on financial institutions’ risk taking. The additional risk took the form of risky lending, faster asset growth, and a greater reliance on low-quality capital. This response to less oversight boosted banks’ odds of failure. Lastly, we show that the reduction in oversight capacity led to more costly failures because there were longer delays in closing insolvent institutions, and because more bad assets were passed to the government insurance fund.
- DOI
- 10.1093/rfs/hhaa090
- Volume
- 34
- Issue
- 6
- Pages
- 3181-3212
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref