Banks' Strategic Responses to Supervisory Coverage: Evidence from a Natural Experiment

51 Pages Posted: 23 Feb 2017 Last revised: 5 Feb 2019

See all articles by Ivan Ivanov

Ivan Ivanov

Federal Reserve Bank of Chicago

Benjamin Ranish

Board of Governors of the Federal Reserve System

James Wang

Board of Governors of the Federal Reserve System

Date Written: February 4, 2019

Abstract

We study how supervisory coverage affects syndicated lending. Relying on an unexpected change in supervisory coverage, we document that the costs of bank credit for borrowers excluded from supervision decrease by approximately 18% relative to an otherwise similar control group. We also find that aggregate lending shifts to further reduce supervisory coverage, particularly for riskier deals. This reflects the action of larger and more leveraged banks, as smaller lenders shift their lending to increase supervisory coverage. This suggests that smaller lenders perceive net benefits of supervision through its potential to reduce information asymmetries within the syndicate.

Keywords: Bank Supervision, Syndicated Lending

JEL Classification: G21,G23,G28

Suggested Citation

Ivanov, Ivan and Ranish, Benjamin and Wang, James, Banks' Strategic Responses to Supervisory Coverage: Evidence from a Natural Experiment (February 4, 2019). Available at SSRN: https://ssrn.com/abstract=2921453 or http://dx.doi.org/10.2139/ssrn.2921453

Ivan Ivanov (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://ivantivanov.com

Benjamin Ranish

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

James Wang

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
585
Abstract Views
1,879
Rank
99,740
PlumX Metrics