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Working Paper
The Theory of Financial Stability Meets Reality
A large literature at the intersection of economics and finance offers prescriptions for regulating banks to increase financial stability. This literature abstracts from the discretion that accounting standards give banks over financial reporting, creating a gap between the information assumed to be available to regulators in models of optimal regulation and the information available to regulators in reality. We bridge insights from the economics, finance, and accounting literatures to synthesize knowledge about the design and implementation of bank regulation and identify areas where more ...
Working Paper
Current Expected Credit Losses (CECL) Standard and Banks' Information Production
We examine whether the adoption of the current expected credit losses (CECL) model, which reflects forward-looking information in loan loss provisions (LLP), improves banks’ information production. Consistent with better information production, we find changes in CECL banks' financial reporting and operations. First, these banks' loan loss provisions become timelier and better reflect future local economic conditions. Second, CECL banks disclose longer, more forward-looking, and more quantitative LLP information. Lastly, they have fewer loan defaults after adopting CECL. These improvements ...
Working Paper
Social Externalities of Bank Enforcement Actions: The Case of Minority Lending
This paper studies the role banking supervision plays in improving access to credit for minorities by investigating how enforcement decisions and orders (EDOs) affect the bank borrower base. We find that, after an EDO's termination, banks significantly increase residential mortgage lending to minorities, even when the enforcement order is not issued for violations of fair lending laws. Our findings suggest that improvements in banks' internal credit assessment and compliance due to the enforcement process are associated with the expansion in lending to minority borrowers. Our findings ...
Working Paper
Observing Enforcement: Evidence from Banking
This paper finds that the disclosure of supervisory actions is associated with changes in regulators' enforcement behavior. Using a novel sample of enforcement decisions and orders (EDOs) and the setting of the 1989 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which required the public disclosure of EDOs, we find that U.S. bank regulators issue more EDOs, intervene sooner, and rely more on publicly observable signals after the disclosure regime change. The content of EDOs also changes, with documents becoming more complex and boilerplate. Our results are stronger in ...