Supervising Failing Banks

Sergio A. Correia, Stephan Luck and Emil Verner

No 34343, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the role of banking supervision in anticipating, monitoring, and disciplining failing banks. We document that supervisors anticipate most bank failures with a high degree of accuracy. Supervisors play an important role in requiring troubled banks to recognize losses, taking enforcement actions, and ultimately closing failing banks. To establish causality, we exploit exogenous variation in supervisory strictness during the Global Financial Crisis. Stricter supervision leads to more loss recognition, reduced dividend payouts, and an increase in the likelihood and speed of closure. Increased strictness entails a trade-off between a lower resolution cost to the FDIC and reduced credit.

JEL-codes: G0 G01 G21 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-fdg and nep-reg
Note: CF ME
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