Winners and Losers from Supervisory Enforcement Actions against Banks
70 Pages Posted: 21 Feb 2017 Last revised: 27 Nov 2018
Date Written: October 2018
We investigate how supervisory enforcement actions against banks affect business borrowers, and some real economic consequences of these effects. An initial event-study analysis suggests negative short-term valuation effects of these actions for large relationship borrowers, which are reversed after new loans are granted. Loan-level analysis suggests that sanctioned banks try to offset the uncertainty and reputational damage of the actions by improving credit for both relationship and non-relationship large businesses, but decrease credit to small businesses. Enforcement actions also ameliorate financial constraints of large relationship borrowers, with favorable economic consequences for employment and R&D investment, but not for capital investment.
Keywords: Enforcement Actions, Bank Lending, Financial Contracting, Financial Constraints
JEL Classification: G21, G28, G32, K42
Suggested Citation: Suggested Citation