In this paper, we exploit a natural experiment in which thrifts in several states witnessed an exogenous reduction in supervisory attention to assess the effect of supervision on financial institutions' willingness to take risk. We show that the affected institutions took on much more risk than...

We exploit an exogenous reduction in bank supervision to demonstrate a causal effect of supervisory resources on financial institutions' willingness to take risk. The additional risk took the form of more risky loans, faster asset growth, and a greater reliance on low quality capital. This...

Inconsistently applied regulations are a hallmark of the U.S. banking system. Because many regulations only apply to a subset of banks, competition and other interactions in lending and deposit markets can both contribute meaningfully to a regulation's overall effect and also invalidate the...