The effect of bank supervision and examination on risk taking: Evidence from a natural experiment

23Citations
Citations of this article
63Readers
Mendeley users who have this article in their library.

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.

Cite

CITATION STYLE

APA

Kandrac, J., & Schlusche, B. (2021). The effect of bank supervision and examination on risk taking: Evidence from a natural experiment. Review of Financial Studies, 34(6), 3181–3212. https://doi.org/10.1093/rfs/hhaa090

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free