The Death of a Regulator: Strict Supervision, Bank Lending, and Business Activity

The Death of a Regulator: Strict Supervision, Bank Lending, and Business Activity

The Death of a Regulator: Strict Supervision, Bank Lending, and Business Activity

We exploit the extinction of the thrift supervisor (OTS) to analyze the effects of supervision on bank lending and bank management. We first show that the OTS replacement resulted in stricter supervision of former OTS banks. Next, we analyze the ensuing lending effects and show that former OTS banks on average increase small business lending by roughly 10 percent.

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