Topic: Regulator Supervisory Power and Bank Loan Contracting
Lecturer: Le ZHANG, The Australian National University
Time: 10:00-12:00 a.m. December 26th, 2019 (Thursday)
Venue: B423, Zhixin Building
Abstract: Using a large sample from 39 countries, we examine the link between a regulator’s supervisory power and bank loan contracting. We find that loans issued by banks that operate under more powerful supervisors have a higher spread, smaller size and shorter maturity. Moreover, these loans are more likely to have covenants and collateral requirements. Importantly, our findings are more pronounced for firms with higher credit risk. Tests based on instrumental variables and country fixed effects regressions provide confirming evidence of a causal link. Overall, these results suggest that a regulator’s supervisory power is an important determinant of banks’ risk-taking in their lending activities.