Local Bank Supervision

Di Gong, Thomas Lambert and Wolf Wagner

No 18571, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper provides novel evidence for informational advantages of local bank supervision, outweighing biases due to the pursuit of local interests. For identification, we exploit a policy reform in China that moved supervision for a subset of bank branches from the national to the city level. Following the reform, these branches were 50 to 74% more likely to face an enforcement action. The tighter local supervision results in more conservative lending by banks, reducing in turn aggregate loan supply in cities with more local supervision. Our findings inform the debate on the design of an optimal supervisory architecture.

Keywords: lending (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2023-11
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