Inconsistent Regulators: Evidence From Banking

Sumit Agarwal, David Lucca, Amit Seru, Francesco Trebbi

NBER Working Paper No. 17736
Issued in January 2012
NBER Program(s):   CF   ME   POL

US state chartered commercial banks are supervised alternately by state and federal regulators. Each regulator supervises a given bank for a fixed time period according to a predetermined rotation schedule. We use unique data to examine differences between federal and state regulators for these banks. Federal regulators are significantly less lenient, downgrading supervisory ratings about twice as frequently as state supervisors. Under federal regulators, banks report higher nonperforming loans, more delinquent loans, higher regulatory capital ratios, and lower ROA. There is a higher frequency of bank failures and problem-bank rates in states with more lenient supervision relative to the federal benchmark. Some states are more lenient than others. Regulatory capture by industry constituents and supervisory staff characteristics can explain some of these differences. These findings suggest that inconsistent oversight can hamper the effectiveness of regulation by delaying corrective actions and by inducing costly variability in operations of regulated entities.

download in pdf format
   (348 K)

email paper

This paper is available as PDF (348 K) or via email.

This paper was revised on January 31, 2012

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17736

Published: Sumit Agarwal & David Lucca & Amit Seru & Francesco Trebbi, 2014. "Inconsistent Regulators: Evidence from Banking," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 889-938. citation courtesy of

Users who downloaded this paper also downloaded these:
Gorton and Metrick w17778 Getting up to Speed on the Financial Crisis: A One-Weekend-Reader's Guide
Krishnamurthy, Nagel, and Orlov w17768 Sizing Up Repo
Bordo and Meissner w17896 Does Inequality Lead to a Financial Crisis?
Zitzewitz w17732 Does Transparency Reduce Favoritism and Corruption? Evidence from the Reform of Figure Skating Judging
Goodhart, Kashyap, Tsomocos, and Vardoulakis w17909 Financial Regulation in General Equilibrium
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us