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The Real Effects of Bank Supervision: Evidence from On-Site Bank Inspections

Andrea Passalacqua (), Paolo Angelini (), Francesca Lotti () and Giovanni Soggia ()
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Andrea Passalacqua: Board of Governors of the Federal Reserve System
Paolo Angelini: Bank of Italy
Giovanni Soggia: Bank of Italy

No 1349, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We show that bank supervision reduces distortions in credit markets and generates positive spillovers for the real economy. Exploiting the quasi-random selection of inspected banks in Italy, we show that financial intermediaries are more likely to reclassify loans as non-performing after an audit. Moreover, they change their lending policies as the composition of new lending shifts toward more productive firms. As a result, productive firms invest more in labor and capital, while underperforming firms are more likely to exit the market. Taken together, our results show that bank supervision is an important complement to regulation in improving credit allocation.

Keywords: bank supervision; inspections; credit allocation; real effects. (search for similar items in EconPapers)
JEL-codes: G22 G28 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba, nep-eur and nep-fdg
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