The Disciplining Effect of Bank Supervision: evidence from SupTech

Hans Degryse, Cédric Huylebroek and Bernardus Doornik

No 617, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Regulators increasingly rely on supervisory technologies (SupTech) to enhance bank supervision, but their potential role in disciplining bank behavior remains unclear. We address this knowledge gap using unique data from the SupTech application of the Central Bank of Brazil. We show that, after a SupTech event, banks reveal inconsistencies in their risk reporting and tighten credit to less creditworthy firms, effectively reducing risk-taking. This credit tightening in turn has small spillovers on less creditworthy firms borrowing from affected banks. Our results can be explained by a moral suasion channel, offering novel insights into the role of SupTech in bank supervision.

Date: 2025-02
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