TY - JOUR AU - Agarwal, Sumit AU - Lucca, David AU - Seru, Amit AU - Trebbi, Francesco TI - Inconsistent Regulators: Evidence From Banking JF - National Bureau of Economic Research Working Paper Series VL - No. 17736 PY - 2012 Y2 - January 2012 DO - 10.3386/w17736 UR - http://www.nber.org/papers/w17736 L1 - http://www.nber.org/papers/w17736.pdf N1 - Author contact info: Sumit Agarwal National University of Singapore Mochtar Raidy Building 15 Kent Ridge Drive Singapore Tel: +1-202-687-8207 E-Mail: ushakri@yahoo.com David Lucca Federal Reserve Bank of New York 33 Liberty Street New York, NY 10045 E-Mail: david.lucca@gmail.com Amit Seru Stanford Graduate School of Business Stanford University 655 Knight Way Tel: 650/736-0223 E-Mail: aseru@stanford.edu Francesco Trebbi Haas School of Business University of California, Berkeley 2220 Piedmont Ave Berkeley, CA 94720 E-Mail: ftrebbi@berkeley.edu AB - 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. ER -