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Bank enforcement actions and the terms of lending

Yota Deli (), Manthos Delis (), Iftekhar Hasan () and Liuling Liu

No 23/2016, Research Discussion Papers from Bank of Finland

Abstract: Formal enforcement actions issued against banks for violations of laws and regulations related to safety and soundness can theoretically have both positive and negative effects on the terms of lending. Using hand-collected data on such enforcement actions issued against U.S. banks, we show that they have a strong negative effect on price terms (loan spreads and fees) for corporate loans and a positive one on non-price terms (loan maturity, size, covenants, and collateral). The results also indicate that in the absence of enforcement actions, the cost of borrowing during the subprime crisis would have been much higher, while punished banks intensify use of collateral.

JEL-codes: E44 E51 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mac
Date: 2016-08-06
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