Does going easy on distressed banks help the macroeconomy?

C. Hundtofte

No 823, Staff Reports from Federal Reserve Bank of New York

Abstract: During banking crises, regulators often relax their requirements and refrain from closing troubled banks. I estimate the real effects of such regulatory forbearance during the U.S. savings and loan crisis by comparing states' economic outcomes by the amount of forbearance they receive. As instruments, I use historical variation in deposit insurance of similar financial intermediaries (thrifts) and exploit geographic variation in principal supervisory agent (PSA). The evidence suggests a policy-induced real estate boom during forbearance (1982-89), followed by a bigger bust in real estate and real GDP. The relationship does not appear driven by the ex ante size, industry exposure, or systematic cyclicality of a state.

Keywords: financial crises; regulatory policy (search for similar items in EconPapers)
JEL-codes: G01 G2 H12 (search for similar items in EconPapers)
Date: 2017-10-01
New Economics Papers: this item is included in nep-ban, nep-cba and nep-his
Note: Previous Title: “Does Going Easy on Distressed Banks Help Economic Growth?”
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Citations: View citations in EconPapers (2)

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